SEC Accuses 2 Crypto Firms of Failing to Disclose Risks to Investors

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For nearly two years, ordinary Americans have put money into a crypto platform called Gemini, earning high interest rates for their money at a time when those can be extremely hard to come by.

But in November, the 340,000 users of the program run by Silicon Valley twins Cameron and Tyler Winklevoss found themselves unable to withdraw their money as the crypto market began to crash and the company was going through a liquidity crisis.

Now the Securities and Exchange Commission is looking to do something about it. On Thursday, the regulator accused Gemini and another company it does business with, Genesis, of failing to register as securities. It’s an attempt to hold companies accountable and could generate damages to repay investors.

The SEC is targeting Gemini Earn, a program that promised consumers high interest returns for parking their money in these crypto accounts. He made the same accusation against a Genesis.

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 announcing the charges. Registration, he said, is not optional. It’s the law. The agency did not specify the amount of damages it is seeking.

The SEC’s decision is part of a government effort to hold crypto firms to account for massive customer losses, which have mounted since the implosion of cryptocurrency exchange FTX in November, sparking repercussions in the industry. The SEC and the Commodity Futures Trading Commission each recently filed suit against FTX co-founder Sam Bankman Fried with the same goal in mind.

Gemini offers high rates to customers in exchange for borrowing their money. They can do this because Genesis pays high rates to Gemini to borrow their money, the free crypto worlds version of a bank. Gemini says it can’t refund consumers because Genesis hasn’t returned the money to Gemini. Genesis denies the claim.

As a result, around $900 million is frozen on Gemini Earn with no indication of when customers will be able to access it.

Gemini co-founders Cameron and Tyler Winklevoss are known as provocateurs in Silicon Valley. The twin brothers were Harvard Olympic rowers who sued Mark Zuckerberg, alleging he and his partners stole Facebook’s idea from a company they founded. Posing as early adopters of crypto, they transformed into some of the most successful entrepreneurs in the industry as Gemini grew to become one of the most popular crypto lending platforms.

A big reason for this popularity was Earn, which since its launch almost two years ago promised high returns.

Genesis is part of the Digital Currency Group, or DCG, a conglomerate led by finance magnate Barry Silbert and whose holdings include asset manager Grayscale Investments and news platform CoinDesk.

Neither Geminis Cameron Winklevoss nor a representative for Genesis responded to a request for comment.

The SEC has already sought to use this power. In early 2022, the agency billed and reached a $100 million settlement with crypto lender BlockFi.

SEC officials told reporters Thursday that the ruling against Gemini and Genesis was part of a larger plan to prosecute crypto companies that failed to register as securities. They said they made no distinction between Gemini and Genesis in pursuing the action.

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