A crypto exchange came out ahead in a closely watched legal dispute over a failed lending program that left hundreds of thousands of users unable to access their funds.
An arbitrator found earlier this month that Gemini did not mislead users and was not at fault for the collapse of its Earn lending program, according to CNBC. The claim had been filed in late 2024 by a user of the program.
The ruling, dated August 12, found there was insufficient evidence that Gemini had lied to customers or failed to conduct proper due diligence with Genesis Global Capital, the main lending partner at the center of the program's collapse.
The arbitrator's ruling quoted the legal standard that applied to part of the claim: "To succeed in a claim for negligent infliction of emotional distress, a claimant must prove: (i) a breach of a duty owed to the claimant; (ii) emotional harm; (iii) a direct causal connection between the breach and the emotional harm; and (iv) circumstances providing some guarantee of genuineness of the harm. In the instant case, Claimant offered no evidence of an actual or perceived threat to his physical safety."
Arbitrators instead directed blame toward Genesis and its parent Digital Currency Group, led by Barry Silbert. The ruling stated: "The scope of the Silbert / DGC / Genesis fraud was massive, and until the fraud was discovered by Gemini, it went undetected by Genesis' & DCG's auditors, as well as by various regulatory authorities."
Silbert is currently facing several multibillion-dollar lawsuits accusing him of defrauding investors. Last year, DCG agreed to pay the Securities and Exchange Commission $38.5 million to settle charges of misleading investors. Silbert and DCG did not respond to CNBC's request for comment.
Earn launched in 2021 and allowed users to earn yields of up to 7.4% annually on their cryptocurrency holdings by lending them out through Genesis as an intermediary. Gemini froze withdrawals from the program in November 2022, shortly after Genesis paused new loan originations and redemptions due to a liquidity crunch. More than 300,000 users were affected.
Legal consequences followed quickly. The New York Attorney General sued Gemini over Earn and settled with the company for $50 million in 2024. In February of that year, Gemini announced a settlement in principle with Genesis and other creditors. By May 2024, Earn users received $2.18 billion worth of digital assets back, representing 97% of what was owed and $1 billion more than what Genesis held when it halted withdrawals in 2022.
As of earlier this month, more than a dozen disputes brought by Earn customers against Gemini remain active.
