Gemini and Genesis charged by SEC with selling unregistered securities

The United States Securities and Exchange Commission (SEC) on Jan. 12 charged cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini with offering unregistered securities through Gemini’s “Earn” program.

Known as Gemini Earn, the yield-bearing crypto product was launched in February 2021. Genesis, a subsidiary of crypto conglomerate Digital Currency Group (DCG) entered into a deal with Gemini to offer the exchange’s customers the product. 

Gemini customers could loan their crypto to Genesis under the promise the latter would repay the loan with interest. Genesis had full control over how it would earn a yield to repay Gemini creditors.

“We allege 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.

Gensler added 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.”

On Nov. 10, Genesis revealed it had around $175 million worth of funds stuck on FTX as the crypto exchange faced a liquidity crisis at the time. The same day DCG sent Genesis $140 million in an attemptto “strengthen its balance sheet.”

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It wasn’t enough, and on Nov. 16 Genesis suspended withdrawals, citing “unprecedented market turmoil.”

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Genesis and DCG allegedly owe $900 million to Gemini’s clients. A Jan. 10 open letter from Gemini co-founder, Cameron Winklevoss, claimed more than 340,000 users were a part of Gemini’s Earn program.

The SEC said its investigating other securities law violations from other entities relating to the Gemini Earn program.

The SEC’s complaint was filed in the U.S. District Court for the Southern District of New York.

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