Gemini Earn Users Thought Their Funds Were Protected With FDIC, Turns out They Weren’t

Gemini Exchange clients whose funds have been frozen report being misled into believing that their money is protected by the Federal Deposit Insurance Corporation (FDIC).

Gemini customers claim the exchange misled them regarding the FDIC status of their GUSD stablecoin deposits on the platform through ambiguous terminology in marketing materials and customer support.

The Gemini clients criticise the ambiguous statements made by the FDIC.

Several Gemini clients that the stock exchange failed to distinguish the FDIC status from its own bank deposits stablecoins and Gemini client products, inducing the New York financial services department to investigate the stock market.

Under U.S. federal legislation, it is illegal to misrepresent FDIC insurance.

Informing oneself on the fdic status of the gusd stablecoin kept in its account of gemini gains bearing interest, Gemini Customer Service told a customer that their gusd at other financial institutions qualified for FDIC coverage. The client's accumulation account amount is currently frozen.

Gemini offered to earn clients up to 7% interest annually on crypto deposits. Gemini suspended withdrawals from their earn product after withdrawals and loans from their credit partner Genesis Global Capital on November 16, 2022.

Genesis generated interest for clients Earn by lending their deposits to other institutions at a higher rate of interest. Gemini would have collected up to 4.29% of interest accumulated as agent's fees. Genesis filed for bankruptcy on Jan. 19, 2023, reportedly owing its top 50 creditors around $3.5 billion. Over 300,000 gemini generate approximately $900 million in revenue for clients.

The U.S. Securities and Exchange Commission is investigating Gemini and Genesis for offering the Earn product as an unregistered security

Marketing Campaigns Reinforced Winklevoss Aura

Some investors put their money in Gemini because of the reputation of its founders, Cameron and Tyler Winklevoss.

Aggressive marketing campaigns with slogans such as "crypto without chaos," and "the revolution needs rules," splattered on metros and taxi rooftops in 2019, painted gemini and winklevii as precursors to order in an industry largely chaotic.

In a 2019 blog post, the Winklevii championed the exchange’s philosophy of “ask for permission, not for forgiveness.”

Gemini has also commercialized its registration as a limited purpose trust company with the New York Department of Financial Services as an indication of its reliability.

We opted for this path because we believed it to build the future of money, we first needed to build confidence in this new asset class," reads the blog post.

Dennis Kelleher, an advocacy group, believes that Gemini deliberately misled its investors.

"everyone knows the value in terms of investor comfort and trust in something that is FDIC assured," he said axios. He criticized the exchange to lull investors in a direction of "false comfort" by the appearance of legitimacy.

However, it is not certain that the FDIC will take enforcement measures. Its only significant enforcement measure since 2008 was a fine of only $100,000.