Crypto exchange, Gemini, is being scrutinized by the New York Department of Financial Services (NYDFS). Gemini came under the radar of the regulatory body due to claims made by the company concerning the safety of customers’ assets.
Last year, the exchange continuously claimed that the assets of customers using its Earn product were safe and backed by the Federal Deposit Insurance Corporation (FDIC). It repeatedly emailed users that this was so because its stablecoin, Gemini Dollar (GUSD), was eligible for FDIC insurance.
However, this was not true as the Earn product was not FDIC insured, and it is an offense for a financial firm to imply that a product is FDIC insured when it is not. Hence, it is believed that Gemini miscommunicated and misled its users.
According to a report by Axios,
“Gemini didn't say explicitly that its Earn program, or GUSD, is directly FDIC insured. Instead, on its website, in a section called FDIC Insurance, Gemini says that GUSD is at least in part backed by dollars that may be held in FDIC-eligible accounts at three banks: State Street, Signature, and Silvergate.“
This miscommunication by Gemini is affecting its customers. About $900 million was frozen after the exchange halted withdrawals from its Earn product following the FTX collapse. Also, Gemini and its bankrupt partner, Genesis, are facing charges from the Securities and Exchange Commission (SEC) for offering unregistered securities through Earn.
Gemini assured its Earn customers that it is working with utmost urgency to unfreeze their assets as this remains the company’s utmost priority.
Finally, the FDIC has warned banks that misrepresentation of FDIC by crypto businesses is a considerable risk to traditional financial institutions.
