SEC charges Gemini and Genesis with offering unregistered securities

Today, SEC accused Gemini and Genesis of an unregistered offering of securities through the Gemini Earn lending product. Investigations into other securities violations are ongoing.

In February 2021, Gemini opened a Gemini Earn product with Genesis, in which the latter was a lender, and Gemini acted as an agent for its customers. In return for customers borrowing from Genesis, Gemini received an interest rate that was sometimes as high as 4.29%, according to the press release from SEC.gov.

The complaint 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.

Related: Gemini is struggling to unlock its Earn program

As of November 2022, despite the efforts of the company itself, restructuring advisors, creditors, and its parent company, Digital Currency Group, Genesis has still not unlocked customer redemptions and the creation of new loans on the platform. Gemini Earn customers have also been unable to access their funds.

Related: Genesis creditors seek to avoid bankruptcy

Earlier this year, Gemini co-founder Cameron Winklevoss wrote an open letter to Digital Currency Group, a parent company of Genesis and Gemini. Cameron accused DCG of being responsible for 340,000 Gemini Earn users not getting their money back because DCG owes Genesis $1.6 billion.

Related: Gemini sends a letter to DCG

Cameron set a Jan. 8 deadline for both DCG and Genesis to resolve the situation. Barry Silbert, DCG’s chief executive, denied the allegations and missed the deadline, resulting in Gemini shutting down the Gemini Earn product.

Related: The Silbert Showdown

The SEC accusing Gemini and Genesis repeats the investigation launched in November 2022 by several U.S. states, which accused Genesis of offering unregistered securities.

Related: Genesis is under investigation in the U.S.

SEC Chair Gary Gensler commented on the securities law violation charges:

We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors. Today’s 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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Genesis and Gemini with violations of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.