New York Sues Coinbase, Gemini Over Alleged Law Violations

New York regulators have pursued separate enforcement actions against cryptocurrency exchanges Coinbase and Gemini over alleged violations of state law, resulting in hundreds of millions of dollars in penalties and restitution across cases spanning 2023 and 2024.

Despite appearances of a single coordinated effort, the state’s actions against the two exchanges were distinct proceedings brought by different agencies on different timelines. Together, they represent New York’s most aggressive use of state-level authority to police major crypto platforms.

NYDFS Hit Coinbase With $100 Million in Penalties and Compliance Costs

On January 4, 2023, the New York Department of Financial Services announced that Coinbase would pay a $50 million civil penalty after investigators found significant failures in its compliance systems. The exchange was also required to invest an additional $50 million in remediating its compliance program.

NYDFS said Coinbase’s transaction-monitoring backlog had exceeded 100,000 unreviewed alerts by late 2021. The regulator characterized the failures as spanning the exchange’s Bank Secrecy Act/Anti-Money Laundering compliance, transaction monitoring, and cybersecurity controls.

The Coinbase action was a consent order, meaning the exchange agreed to settle rather than contest the findings. Coinbase has since taken steps to address compliance gaps, including suspending certain product offerings to meet regulatory expectations.

Attorney General Sued Gemini, Genesis, and DCG Over $1 Billion in Alleged Losses

In a separate proceeding, New York Attorney General Letitia James announced on October 19, 2023 that she was suing Gemini, Genesis Global Capital, and Digital Currency Group. The lawsuit alleged the three companies defrauded more than 230,000 investors, including at least 29,000 New Yorkers.

The case centered on Gemini Earn, a lending product through which Gemini customers deposited crypto assets that were then lent to Genesis. When Genesis defaulted on approximately $940 million worth of those loans, more than 200,000 Earn customers were left unable to access their funds.

The alleged total losses exceeded $1 billion, making it one of the largest state-level crypto enforcement actions by dollar amount.

Gemini Returned Over $2 Billion to Earn Users

NYDFS issued a consent order against Gemini on February 28, 2024, addressing the Earn program failures. Separately, on June 14, 2024, the Attorney General announced that Gemini agreed to return approximately $50 million worth of digital assets to Earn investors and accepted a ban from operating any cryptocurrency lending program in New York.

By June 2024, Gemini had returned more than $2.18 billion in digital assets to Earn users, with over 97% of distributions completed. The restitution effort represented one of the largest customer recovery outcomes in crypto enforcement history.

Why State-Level Enforcement Matters for Crypto Exchanges

New York’s dual-track approach, with NYDFS handling licensing and compliance failures while the Attorney General pursued fraud claims, demonstrates how state regulators can apply existing financial laws to crypto companies without waiting for federal legislation.

For exchanges operating under New York’s BitLicense regime, these cases set clear precedents. Compliance monitoring failures can trigger eight-figure penalties, and lending products that expose retail customers to counterparty risk face existential regulatory scrutiny.

The actions also carry implications for users of both platforms. Coinbase users in New York may see tighter verification and monitoring procedures. Gemini’s lending ban means the exchange cannot relaunch Earn-style products in the state, a constraint worth noting as stablecoin and yield products remain central to crypto platform strategies.

What to Watch Next

The Attorney General’s lawsuit against Genesis and Digital Currency Group remains a live proceeding. Any settlement or judgment could affect how other states approach similar cases against crypto lenders and their affiliates.

Coinbase’s mandated compliance overhaul is ongoing. Whether the exchange’s remediation satisfies NYDFS, and whether other state regulators pursue parallel actions, will shape the compliance cost baseline for licensed exchanges nationwide. The broader market continues to adjust to regulatory pressure, even as activity on platforms like smaller exchanges keeps pace with shifting sentiment.

FAQ

Did New York file one lawsuit against both Coinbase and Gemini?

No. According to unconfirmed reports, the two were named together, but verified evidence shows these were separate enforcement actions. NYDFS pursued Coinbase in January 2023, while the Attorney General sued Gemini, Genesis, and DCG in October 2023.

How much did Coinbase pay?

Coinbase agreed to a $50 million civil penalty plus a $50 million compliance investment, totaling $100 million.

Did Gemini Earn customers get their money back?

Gemini returned more than $2.18 billion in digital assets to Earn users, covering over 97% of affected customers as of June 2024.

Can Gemini offer lending products in New York again?

No. As part of its settlement with the Attorney General, Gemini is banned from operating any cryptocurrency lending program in New York.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.