The New York State Department of Financial Services (NYDFS) has reached a settlement with the Winklevoss-owned cryptocurrency exchange Gemini.

According to a press release from NYDFS on February 28, the regulator stated that Gemini had failed to adequately safeguard its customers and had encountered numerous compliance issues.

Superintendent Adrienne Harris expressed concern, stating that Gemini neglected to conduct proper due diligence on an unregulated third party, which was later implicated in a significant fraud case. This negligence resulted in harm to customers of Gemini's Earn Program, who were suddenly unable to access their assets when the third party, Genesis Global Capital, experienced financial difficulties.

Under the terms of the settlement, Gemini is required to refund a minimum of $1.1 billion to customers of its Earn Program. This action follows findings that Gemini had not sufficiently supervised its operations with Genesis, the third party involved in the alleged fraud.

Additionally, Gemini has agreed to contribute $40 million towards the Genesis bankruptcy proceedings, directly benefiting customers of the Earn Program. Furthermore, Gemini will pay a $37 million penalty to NYDFS for various compliance shortcomings, underscoring the regulatory body's commitment to enforcing strict financial regulations within the cryptocurrency sector.

This settlement concludes a protracted legal dispute and ensures a favorable resolution for affected customers, amidst broader regulatory scrutiny of cryptocurrency lending programs.

In January 2023, both Genesis and Gemini were charged by the SEC for conducting unregistered offerings and sales of securities through the Gemini Earn program, which involved raising billions from investors without proper registrations. The two companies were also sued by the New York Attorney General's Office over the Earn program and allegations of fraud, which included Genesis parent Digital Currency Group and its CEO Barry Silbert.

While Genesis has settled both the SEC and NYAG lawsuits, and recently paid an $8 million penalty and surrendered its BitLicense due to compliance failures identified by NYDFS, Gemini has not provided updates on the SEC and NYAG cases.