SEC accuses Genesis and Gemini of selling unregistered securities

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The Securities and Exchange Commission on Thursday accused Genesis Global Capital and Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, of selling unregistered securities to investors through Gemini’s Earn crypto asset lending program. .

The SEC alleges that the Gemini Earn program constituted an offering and sale of securities under SEC law, raising billions of dollars in crypto assets from hundreds of thousands of investors, and should have registered with of the SEC.

“We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said in a statement.

“Today’s charges build on previous actions to make it clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our proven securities laws. This best protects investors. It builds confidence in the markets. It’s not optional. It’s the law.”

According to the complaint, in December 2020, Genesis entered into an agreement with Gemini to offer Gemini customers the ability to lend their crypto assets to Genesis in exchange for interest payments.

Starting in February 2021, Genesis and Gemini began offering the program to investors.

Gemini facilitated the transaction and deducted an agent fee for itself, sometimes as high as 4.29%, from returns it received from Genesis, according to the SEC.

The SEC alleges that Genesis then exercised discretion over how to use investors’ crypto assets to generate income and pay interest to investors.

Last November, Genesis, which is a wholly-owned subsidiary of Barry Silbert’s Digital Currency Group (DCG), announced that it would suspend withdrawals on its lending platform as it lacked sufficient liquidity to meet demands in a backdrop of crypto market volatility following FTX. collapse. At the time, Genesis held approximately $900 million in Gemini customer deposits, which remain frozen on the platform.

The story continues

The SEC announcement comes as Genesis and Gemini have engaged in a war of words, with Cameron Winklevoss earlier this week calling on DCG CEO Barry Silbert to resign and accusing Silbert and others at DCG of doing “misrepresentations and misrepresentations to Gemini”.

Cameron Winklevoss, co-founder of crypto exchange Gemini Trust Co., attends the 2021 Bitcoin Convention cryptocurrency conference at the Mana Convention Center in Miami, Florida on June 4, 2021. (Photo by Marco BELLO / AFP) (Photo by MARCO BELLO/AFP via Getty Images)

Investigations continue

The recent collapse of crypto asset lending programs and the suspension of the Genesis program underscores the critical need for platforms offering securities to retail investors to comply with federal securities laws, said Gurbir Grewal, Director of the Enforcement Division of the SEC. As we have seen time and time again, failure to do so deprives investors of the basic information they need to make informed investment decisions.

According to the SEC, investigations into other securities law violations and other alleged misconduct related entities and individuals are ongoing.

Grewal encouraged anyone with information about this matter or others to come forward and, if necessary, to do so under the SEC’s whistleblower program.

The SEC is filing a lawsuit and part of the relief sought from the federal district court will consist of a monetary civil penalty, plus restitution of any ill-gotten gains.

The SEC action comes after investors filed a class action lawsuit against Gemini, alleging they were duped into investing in the exchange’s interest-bearing accounts without being told they were unregistered securities.

Gensler has warned for months that the agency will take enforcement action if companies fail to comply with SEC rules.

Gensler told Yahoo Finance in a December interview that he has one goal when it comes to regulating crypto markets in 2023: to make crypto exchanges and lending platforms compliant with existing rules.

“They can do it the right way, working with the SEC, or we can continue down a path with more enforcement, and I have to say the track is getting shorter,” Gensler said.

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