Gemini and Genesis hit with SEC charges for selling unregistered securities

Written by Joy Rice

The United States Securities and Exchange Commission (SEC) has charged cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini with offering unregistered securities through Gemini’s “Earn” program. The charges relate to Gemini’s crypto asset lending program, which was launched in February 2021 and was designed to allow customers to loan their crypto to Genesis in exchange for interest.

According to the SEC, in December 2020, Genesis, a subsidiary of crypto conglomerate Digital Currency Group (DCG), entered into a deal with Gemini to offer the exchange’s customers the yield-bearing crypto product. Under the agreement, Gemini customers could loan their crypto to Genesis, with the promise that Genesis would repay the loan with interest. Genesis had full control over how it would earn a yield to repay Gemini creditors.

The SEC has stated that the Gemini Earn program constitutes an offer and sale of securities and should have been registered with the commission. In a statement, the SEC said its complaint alleges that “Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors”. SEC Chair Gary Gensler said in a statement, “We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors”. Gensler added that the charges “build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. It’s not optional. It’s the law.”

The SEC’s complaint was filed in the U.S. District Court for the Southern District of New York. The SEC is also investigating other securities law violations from other entities relating to the Gemini Earn program.

On Nov. 10, 2022, Genesis revealed it had around $175 million worth of funds stuck on FTX as the crypto exchange faced a liquidity crisis. The same day DCG sent Genesis $140 million in an attempt to “strengthen its balance sheet”. However, it wasn’t enough and on Nov. 16 Genesis suspended withdrawals, citing “unprecedented market turmoil.” Gemini co-founder, Cameron Winklevoss has since claimed that Genesis and DCG owe $900 million to Gemini’s clients. In a Jan. 10 open letter from Winklevoss, he claimed more than 340,000 users were a part of Gemini’s Earn program, which was officially shut down on Jan. 8.

The charges against Gemini and Genesis serve as a reminder to companies in the crypto and blockchain space to comply with federal securities laws and regulations.

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