Some Gemini Earn users claim the exchange misled them into thinking that their funds were safe by mentioning FDIC.
The New York Department of Financial Services (NYDFS) is investigating Gemini over its claims related to Federal Deposit Insurance Corporation (FDIC) coverage, Axios reported on Jan. 30.
Gemini Earn users are collectively owed $765.9 million by bankrupt Genesis. Some of these users claim they were misled by Gemini since they believed their assets to be backed by the FDIC.
In emails to users, Gemini allegedly said its stablecoin Gemini Dollar (GUSD) was backed by bank cash deposits that were eligible for FDIC insurance. The fact that Gemini’s own products like Earn were not covered by the FDIC was not something that was clear from its marketing and communications, users claimed in the report.
While some users called Gemini’s communications about FDIC coverage “pretty obviously misleading,” others thought Gemini Earn itself was FDIC-insured, the report noted.
Todd Phillips, a former senior attorney at the FDIC, told Axios that while Gemini’s communications regarding FDIC insurance were “skeezy,” he was not sure if it was outright illegal. Federal law prohibits businesses from knowingly misrepresenting the extent of FDIC coverage.
In a warning to banks, the FDIC and other regulators mentioned misrepresentation of FDIC coverage by crypto businesses as a major risk to traditional financial institutions.
Earlier this month, the Securities and Exchange Commission charged both Genesis and Gemini for unregistered securities offerings through the Gemini Earn program.
