SEC charges Genesis, Gemini over alleged sale of unregistered securities
The US Securities and Exchange Commission (SEC) has charged crypto firms Gemini and Genesis Global over what the regulator calls “the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program”.
According to the SEC complaint, in December 2020 Genesis entered into an agreement with Gemini to offer Gemini customers the opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay interest.
The SEC writes: “Beginning in February 2021, Genesis and Gemini began offering the Gemini Earn program to retail investors, whereby Gemini Earn investors tendered their crypto assets to Genesis, with Gemini acting as the agent to facilitate the transaction. Gemini deducted an agent fee, sometimes as high as 4.29 percent, from the returns Genesis paid to Gemini Earn investors.”
The regulator claims that Genesis “then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors”.
The SEC’s complaint alleges that the Gemini Earn program “constitutes an offer and sale of securities under applicable law and should have been registered with the Commission”.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” says SEC chair Gary Gensler.
Additionally, the SEC further alleges that in November 2022, Genesis announced that it “would not allow its Gemini Earn investors to withdraw their crypto assets because Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market”.
At the time, Genesis held approximately $900 million in investor assets from 340,000 Gemini Earn investors, the SEC says. It adds Gemini terminated the program in January 2023.
According to a report by Bloomberg, Genesis is planning to file for bankruptcy as soon as this week.
Gemini co-founder Tyler Winklevoss has since tweeted saying the SEC’s behaviour is “totally counterproductive“, adding Gemini and other creditors are “working hard together to recover funds”.
He writes: “We look forward to defending ourselves against this manufactured parking ticket. And we will make sure this doesn’t distract us from the important recovery work we are doing.”