Axios reported on January 30 that the New York Department of Financial Services (NYDFS) is looking into Gemini’s claims about being covered by the Federal Deposit Insurance Corporation (FDIC). Last year, Gemini was said to have regularly asserted that the assets of customers using its Earn product were secure because FDIC insured them.
Customers of Genesis’s defunct Gemini Earn platform are due a total of $765,9 million. Some of these customers allege that Gemini deceived them into thinking that their funds were protected by the FDIC when they were not.
Customers were misled
Gemini is accused of misleading customers by saying in emails that the Gemini Dollar (GUSD), its stablecoin, was backed by FDIC-insured bank deposits. Users complained in the report that it was not evident from Gemini’s marketing and communications that its products, such as Earn, were not insured by the FDIC.
The report notes that while some customers found Gemini’s messages on FDIC coverage to be “pretty obviously misleading,” others believed that Gemini Earn was FDIC-insured. In an interview with Axios, Todd Phillips, a former senior attorney at the FDIC, said that while he thought Gemini’s emails about FDIC insurance were “skeezy,” he could not say whether or not they were unlawful. Companies cannot willfully misrepresent their FDIC coverage to customers without breaking federal law.
Gemini suspended Earn withdrawals in November 2022 as a result of the aftermath of the demise of competitor FTX. As a result, almost $900 million in funds were reportedly blocked on the service. Gemini attributed the suspension to a similar freeze at the now-defunct cryptocurrency lender Genesis, where Gemini had invested its clients’ assets.