Arbitrator clears Gemini of liability in Earn lending program collapse

An arbitrator has ruled that Gemini is not liable for the collapse of its Earn lending program, rejecting a user lawsuit filed in late 2024. The August 12 decision found a lack of proof that the exchange misled customers or failed to conduct proper due diligence on its primary lending partner, Genesis Global Capital.

The ruling dismissed claims of negligent infliction of emotional distress, noting the claimant failed to prove a breach of duty or a direct causal link to emotional harm. "In the instant case, Claimant offered no evidence of an actual or perceived threat to his physical safety," the arbitrator wrote.

The decision places the legal and financial onus squarely on Genesis and its parent company, Digital Currency Group. The arbitrator described the actions of DCG founder Barry Silbert and his firms as a massive fraud that remained hidden from auditors and regulators until Gemini uncovered it.

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 currently faces multiple multibillion-dollar lawsuits over alleged investor fraud, while DCG paid the Securities and Exchange Commission $38.5 million last year for misleading investors. Neither Silbert nor DCG responded to requests for comment.

The legal clarity arrives years after the Earn program's implosion severely damaged the exchange's reputation. Launched in 2021, the initiative offered users up to 7.4 percent annual yields by routing their digital assets to institutional borrowers through Genesis.

Gemini froze Earn withdrawals in November 2022 after Genesis suspended new loans and redemptions amid a severe liquidity crunch. The freeze locked out more than 300,000 users and triggered a wave of legal complaints, including a 2024 settlement with the New York Attorney General for $50 million.

Despite this latest arbitration victory, Gemini still faces more than a dozen ongoing customer disputes regarding the program. However, the broader financial exposure for users has largely been resolved through a settlement with Genesis creditors.

That distribution allowed the exchange to return $2.18 billion in digital assets earlier this year, recovering 97 percent of the assets owed to Earn participants. The recovered funds exceeded the total value held when withdrawals initially halted by $1 billion. For institutional investors, the ruling underscores the systemic risks embedded in crypto lending structures that rely heavily on opaque intermediary counterparties.