Bitcoin’s latest price boom is certainly not distracting from what is currently happening in the legal landscape in the cryptocurrency space. Gemini has settled with the New York State Department of Financial Services (NYDFS) for $1.1 billion, promising to return assets to its Earn Program customers. Meanwhile, Sam Bankman-Fried's legal team is fighting for a more lenient sentence for his role in the FTX collapse, pointing out some of his efforts to recover customer funds. In Nigeria, Binance faces major scrutiny over $26 billion in "suspicious flows" of funds, leading to the imprisonment of executives and restricted access to crypto exchanges.
Gemini and NYDFS Reach $1.1 Billion Settlement
Gemini has reached a settlement with the New York State Department of Financial Services (NYDFS) that will start the return of at least $1.1 billion to customers of its Gemini Earn Program. As part of the agreement, Gemini agreed to pay $40 million to the Genesis Global Capital (GGC) bankruptcy for the benefit of Earn customers. The settlement also includes a $37 million penalty imposed on Gemini because of a number of compliance failures pointed out by the NYDFS, which, according to Superintendent Adrienne A. Harris, compromised the company's safety and soundness.
Gemini, pending bankruptcy court approval, promises a full return of cryptocurrency assets to Earn users, plus an appreciation, which totals more than $1.8 billion at current prices. This is $700 million more than when Genesis stopped withdrawals in November of 2022. Gemini believes that around 97% of these assets could be recovered in about two months.
The NYDFS pointed out Gemini's lack of due diligence concerning an unregulated third party that was later accused of massive fraud, causing huge financial turmoil for Genesis Global Capital and, subsequently, the Gemini Earn customers who found themselves unable to access their assets. Superintendent Harris remarked that the settlement could be a big victory for Earn customers, who have a right to the assets they entrusted to Gemini. Additionally, Harris mentioned the possibility of further action against Gemini if it fails to meet its obligations under the agreement.
The Gemini Earn program, which was launched in February of 2021, allowed customers to loan their coins to GGC, which was not licensed by the NYDFS. These assets were then loaned out to GGC's own counterparties, generating interest payments for Earn customers.
However, the program faced a severe setback when GGC declared bankruptcy in January 2023, defaulting on approximately $1 billion in loans made by Earn customers. The NYDFS then zeroed in on Gemini and accused it of inadequate vetting and monitoring of GGC's activities throughout the Earn program's duration.
SBF's Quest for Redemption
There have also been some developments in the FTX saga. Legal counsel for Sam “SBF” Bankman-Fried submitted a memorandum to the U.S. District Court in Manhattan. Filed on Feb. 27, the memo advocates for a prison sentence of less than seven years for Bankman-Fried, who is facing multiple counts of fraud and money laundering. Along with the sentencing submission were 29 letters that aimed to sway Judge Lewis Kaplan's decision by specifically pointing out Bankman-Fried's character and efforts to mitigate the fallout of FTX's collapse.
The letters shed light on the days after the November 2022 bank run that precipitated FTX’s bankruptcy. Interestingly, two documents detail the initial attempts to recover customer funds. Daniel Chapsky, a former FTX head of data science, recounted Bankman-Fried's relentless work ethic and disregard for his own legal defense in favor of assisting bankruptcy professionals. This dedication, according to Chapsky, was instrumental in saving hundreds of millions of dollars for the bankruptcy estate, even as other FTX leaders prioritized self-preservation.
Another letter from Jeremy Brest, the founder of Framework Capital Solutions, also revealed attempts to facilitate the acquisition of FTX assets by a client in November of 2022. Despite these efforts, the acquisition was impeded by the bankruptcy team, though Brest emphasized Bankman-Fried’s unshaking plan to still generate value for FTX clients as the crisis was unfolding.
These revelations come as FTX's new management announces plans to fully repay creditors, with calculations based on the cryptocurrency prices at the time of bankruptcy. Meanwhile, Bankman-Fried,who was convicted on Nov. 3, 2023 of seven criminal charges including wire fraud and money laundering conspiracy, awaits his sentencing on Mar. 28. The verdict could see him spend a maximum of 110 years in prison.
Binance Under Scrutiny in Nigeria
Binance is currently facing increased scrutiny in Nigeria because of concerns over "suspicious flows" of funds. The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, shed some light on these concerns to reporters on Feb. 27, stating that $26 billion passed through Binance Nigeria from unidentified sources over the past year. This situation has drawn attention from a number Nigerian government agencies, including the Securities and Exchange Commission, the Economic and Financial Crimes Commission (EFCC), the police, and the National Security Adviser's office.
To complicate things even more, two Binance executives, citizens of the United States and the United Kingdom, were reportedly detained in Abuja, with their passports confiscated. Additionally, internet access to Binance and other crypto exchanges was blocked in Nigeria on Feb. 21, after allegations of currency manipulation by a presidential adviser. Before this, Binance had already restricted trading of Tether (USDT) in Nigeria in an attempt to keep regulators happy.
The clampdown comes despite the Nigerian government's progressive stance on digital currencies in the past, including lifting a two-year ban on banks engaging in crypto transactions in December and launching a central bank digital currency in 2022. The Africa Stablecoin Consortium also introduced the naira-pegged cNGN stablecoin in a CBN regulatory sandbox recently. Binance has not yet responded to these developments, leaving the future of crypto exchanges in Nigeria very uncertain.
