SEC Sues Crypto Firms Genesis and Gemini Over $900M Loan Proceeds

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WASHINGTONOn January 12, the Securities and Exchange Commission sued Genesis Global Capital and Gemini Trust Company over a $900 million crypto lending program that allegedly violated investor protection laws.

The SEC filed its civil suit in federal court in Manhattan, alleging that Genesis should have registered the product, which would have required providing customers with detailed financial information. The companies began marketing the program to individual investors in February 2021 and have raised billions of dollars in crypto assets from hundreds of thousands of investors, the SEC said.

Under the program, called Gemini Earn, customers of crypto exchange Gemini lent their crypto assets to crypto lender Genesis in exchange for interest payments of up to 8%. Gemini took a fee to arrange the loan, which sometimes reached as high as 4.29%, the SEC said.

The two companies have been feuding since Genesis abruptly suspended withdrawals from the program on Nov. 16 after it was unable to meet redemption requests from customers following the collapse of crypto exchange FTX. At the time, Genesis held about $900 million in assets from 340,000 Gemini Earn customers, according to the SEC.

The SEC lawsuit seeks fines and the return of profits that were illegally earned.

We look forward to defending ourselves against this fabricated parking ticket. And we’ll make sure that doesn’t distract us from the important recovery work we do, Gemini co-founder Tyler Winklevoss said in a tweet in response to the SEC lawsuit.

A Genesis spokeswoman had no comment.

Since Genesis suspended takeovers, Gemini has banded together with other Genesis creditors, saying it wants to find a way for the crypto lender to return assets owed.

In recent days, Cameron Winklevoss, who co-founded Gemini with his brother Tyler, has been upping the ante on Genesis and its parent company, Digital Currency Group. Cameron Winklevos traded barbs with DCG chief executive Barry Silbert on Twitter last week. Cameron Winklevoss accused Silbert of bad faith stall tactics and called for Silbert’s removal as the company’s CEO in two recent open letters posted on Twitter. A DCG spokeswoman called the Winklevoss letters a desperate and unconstructive publicity stunt.

Genesis laid off 30% of its staff last week and is considering filing for bankruptcy, the Wall Street Journal recently reported. The crypto lender suffered heavy losses on loans it provided to now-defunct trading firm Alameda Research and crypto hedge fund Three Arrows Capital. Alameda and Three Arrows filed for bankruptcy last year. Alameda is FTX’s sister trading company.

The lawsuit against Genesis and Gemini resembles another case the SEC and several states have filed on the BlockFi Lendings product, which allowed crypto traders to earn a return by lending their digital assets. The SEC alleged that BlockFis’ interest-bearing accounts were securities and the company should have registered the proceeds. BlockFi paid a $100 million fine to settle the allegations. The company has not admitted or denied wrongdoing.

The new lawsuit is the second recent regulatory complaint filed against Gemini. The Commodity Futures Trading Commission also sued the crypto exchange last year.

The CFTC said in its civil case that Gemini misled regulators in an effort to get bitcoin futures approved in 2017. Gemini denied the CFTC’s allegations at the time. and said she would fight the allegations in court. The litigation is ongoing.

Write to Dave Michaels at [email protected] and Vicky Ge Huang at [email protected]

This article was published by The Wall Street Journal, part of the Dow Jones

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