Gemini Trust Company, the cryptocurrency exchange founded by billionaires Cameron and Tyler WInklevoss, will return $1.1 billion to customers who invested in its defunct loan program, New York regulators said Wednesday.

In addition, Gemini will pay a $37 million fine to the New York State Department of Financial Services (NYDFS) for "significant failures that threatened the safety and soundness of the company," regulators said.

"Gemini failed to conduct due diligence on an unregulated third party, later accused of massive fraud, harming Earn customers who were suddenly unable to access their assets after Genesis Global Capital experienced a financial meltdown," said Superintendent Adrienne A. Harris in a statement.

Gemini's Earn program, which was offered in partnership with crypto lender Genesis Global Capital, was halted during a crypto market crash in November 2022. That dislocation caused Genesis to file for bankruptcy, and has led to extensive litigation between Genesis, Gemini and Genesis's parent company, Digital Currency Group (DCG).

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New York regulators say Gemini allowed customers to loan cryptocurrency to Genesis, "an unregulated third party that was not licensed by the Department." Genesis then took those assets and loaned them out to its own counterparties. 

Earn customers were promised interest payments, but lost their money when Genesis defaulted on approximately $1 billion worth of loans in November 2022. 

Genesis declared bankruptcy two months later, leaving more than 200,000 Earn customers unable to access their digital currency. 

The settlement means that Gemini's Earn customers may soon be able to access those funds. 

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NYDFS said on Wednesday that it retains the right to bring further action against Gemini if the company does not fulfill its obligation to return at least $1.1 billion to customers following the resolution of Genesis' bankruptcy. Gemini has pledged to contribute $40 million to the conclusion of Genesis' bankruptcy in order to benefit Earn customers, the regulator said.

"Today’s settlement is a win for Earn customers, who have a right to the assets they entrusted to Gemini." said Harris. 

The Winklevoss twins — who own and operate Gemini — are best known for suing Meta CEO Mark Zuckerberg over Facebook's early days.

Gemini responded to the NYDFS announcement in a post on X, the platform formerly known as Twitter.

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"Today, we are pleased to announce that we have finally reached a settlement in principle with Genesis and other creditors in the Genesis Bankruptcy that will, if approved by the Bankruptcy Court, result in all Earn users receiving 100% of their digital assets back in kind.," Gemini said.

The company said that if the settlement is approved, it will return over $1.8 billion in value to customers at today's digital currency prices.

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"Looking forward, if the Bankruptcy Court approves the settlement in principle announced today, Earn users can expect to receive approximately 97% of their assets in kind within about two months. And they can expect to receive their remaining asset balance within the next 12 months," Gemini said. 

Gemini added that the Bankruptcy Court process required to approve the settlement could take as long as two months to complete. 

Reuters contributed to this report.