• Gemini is under investigation for misleading claims about FDIC insurance in its marketing.
• The exchange loaned almost $1 billion of user funds to bankrupt crypto lender Genesis, leaving 340,000 users without access to their deposits.
• Both companies are also under US SEC investigation for an unlicensed securities offering.
Gemini Under Investigation
Gemini, a crypto exchange owned by Winklevosses, is under investigation by the New York Department of Financial Services for references to FDIC insurance in its marketing. Federal law prohibits anyone from making false claims about the FDIC insurance status of their financial product.
False Claims About FDIC Insurance
Gemini advertised Earn as a high-yield product and mentioned FDIC insurance in relation to this program. However, the company did not state that Earn deposits benefited from FDIC insurance directly and instead said it was “at least in part” backed by money in such accounts. Regulators are now investigating these claims since false statements about FDIC coverage can mislead depositors into underestimating risks associated with a given financial instrument.
Almost $1 Billion Lost By Users
In reality, user deposits were never covered by Federal Deposit Insurance Corporation (FDIC). Instead, Gemini loaned almost $1 billion of customer funds to Genesis, a crypto lender that has since gone bankrupt. This left some 340,000 Gemini Earn customers without access to their deposits amounting to almost $1 billion lost.
SEC Probe Over Unlicensed Securities Offering
Both companies are now fighting a public battle with each other over who is responsible for these losses while being investigated by the US Securities and Exchange Commission (SEC). The SEC believes that the deal between Genesis and Gemini constituted an unlicensed securities offering and has taken action accordingly against both parties involved.
Increased Pressure on Risky Crypto Investment Schemes
This incident serves as yet another reminder of the potential dangers of investing in cryptocurrencies and highlights the need for increased regulation when it comes to protecting investors from such risks. Regulators are now putting increased pressure on risky crypto investment schemes so as to better protect individuals’ assets from fraudulent activities such as those carried out between Gemini and Genesis