The embattled Gemini crypto exchange, which is has $900 million of customer funds locked up in the Genesis bankruptcy and has been charged by the SEC for offering unregistered securities, now has another problem to add to its list. The New York State Department of Financial Services, which is responsible for regulating the exchange portion of Gemini’s business, is reportedly looking into whether Gemini misled customers that their funds were protected by FDIC insurance — that is, the insurance typically known for protecting funds placed into accounts with actual banks.
When concerned customers contacted Gemini customer support to ask if their funds were safe at Gemini, in the wake of the collapses throughout the crypto industry, they were reassured by customer support that the fiat currency held by Gemini to back their GUSD stablecoin was held in accounts that were eligible for FDIC insurance. Some customers took this to mean that their holdings with Gemini were safe and protected from the possibility of trouble at Gemini: something they’ve now discovered was not the case, as customers of Gemini’s Earn program cannot withdraw their funds.
Cryptocurrency companies misleading or outright lying to customers about FDIC insurance has been something of a trend this year. In July, the Federal Reserve and FDIC sent a cease-and-desist letter to the bankrupt Voyager cryptocurrency broker, demanding they stop claiming that their USD-denominated funds at the company were protected by FDIC insurance (they weren’t). Several weeks later, the FDIC sent a similar letter to FTX US, also demanding they stop making misleading statements about deposit insurance.
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