(Bloomberg) -- Gemini Trust Co., the crypto exchange founded by twin entrepreneurs Cameron and Tyler Winklevoss, will return at least $1.1 billion to customers though the Genesis Global Capital bankruptcy as part of settlement with the New York Department of Financial Services.  

The New York-based firm will also pay a $37 million fine for various compliance failures to the New York Department of Financial Services, Superintendent Adrienne A. Harris said in a statement Wednesday. 

Gemini is returning the funds to customers who lost money through the Gemini Earn program that the exchange ran together with now-bankrupt lender Genesis Global. Gemini also agreed to contribute $40 million to Genesis’s bankruptcy for the benefit of Earn customers in coordination with the bankruptcy court.

“Gemini failed to conduct due diligence on an unregulated third party, later accused of massive fraud, harming Earn customers who were suddenly unable to access their assets after Genesis Global Capital experienced a financial meltdown,” Harris said. “Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini.” 

The Earn program, which was launched in early 2021, let more than 200,000 Gemini users — including almost 30,000 New Yorkers — lend out their coins through Genesis for yield. Genesis stopped withdrawals in late 2022, and filed for bankruptcy in early 2023. Gemini failed to conduct ongoing due diligence into Genesis, or to maintain adequate reserves throughout the running of Earn, the department said.

The agency said that outside of Earn, Gemini also “engaged in unsafe and unsound practices that ultimately threatened the financial health of the company.” Its affiliate, Gemini Liquidity LLC, collected hundreds of millions of dollars in fees that could have gone to Gemini, and that weakened the company’s financial condition. The department said it found various management and compliance deficiencies in its investigation of Gemini.

In a post on the X platform, Gemini noted that under the settlement “all Earn users” will receive “100% of their digital assets back in kind” if the Genesis bankruptcy is approved by the court. A Gemini representative didn’t immediately return a request for comment. 

The settlement is the latest attempt by various governmental agencies, including the US Securities and Exchange Commission, the Justice Department and the Commodity Futures Trading Commission, to clean up crypto. Recent enforcement actions have included crypto exchanges Binance, Kraken and Coinbase Global Inc. 

The SEC charged Gemini and Genesis for the unregistered offer and sale of securities through the Earn program in January 2023. The New York Attorney General recently revised a lawsuit seeking restitution for Earn users. Genesis recently settled with the state. Gemini, Genesis and its parent company Digital Currency Group are also involved in a legal battle.  

The New York agency has the right to bring further action against Gemini if it doesn’t return at least $1.1 billion to Earn customers after the resolution of Genesis’s bankruptcy. 

The department authorized Gemini to engage in virtual currency business in 2015.   

--With assistance from Jonathan Randles.

(Adds comment from Gemini in the seventh paragraph.)

©2024 Bloomberg L.P.