Securities and Exchange Commission on Thursday Was accused crypto firm Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.
Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which offered yields of up to 8% for customers.
According to the SEC, Genesis loaned out Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted agent fees, sometimes as much as 4%, and returned the remaining profits to its users. SEC officials said in a complaint filed in Manhattan federal court that Origin should have registered that product as a securities offering.
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“Today’s charges build on past actions to clarify to the market and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws,” SEC Chairman Gary Gensler said in a statement. Is.”
SEC officials said that Gemini’s Earn Program, supported by Genesis’ lending activities, meets the SEC’s definition by including both an investment contract and a note. Those two characteristics are part of how the SEC evaluates whether an offering is a security.
The SEC says the Earn program has netted companies billions of dollars in crypto assets. The agency is seeking permanent injunctive relief, evictions and civil penalties against both Genesis and Gemini, and noted that it “continues to investigate other securities law violations and other entities and individuals related to alleged misconduct.”
both companies are engaged in a high-profile fight More than $900 million in customer assets that Gemini assigned to Genesis as part of the Earn program were closed this week. Genesis suspended withdrawals following the FTX failure in November, causing a rush to the exits in the crypto universe, and the firm has yet to allow Earn customers to pull their funds.
“US retail investors who participated in the Gemini Earn program suffered substantial losses,” the SEC complaint states. More than 340,000 investors have been affected by the freeze.
in the first three months of The SEC complaint alleges that Gemini earned approximately $2.7 million in agent fees from earnings in 2022. The agency said that Genesis will use the assets of Gemini users to make institutional loans or as “collateral for Genesis’ own lending.”
Over the same period, Genesis paid $166.2 million in interest to customers including Gemini on interest income of $169.8 million, the SEC said.
Tyler Winklevoss and Cameron Winklevoss (L-R), creators of crypto exchange Gemini Trust Company, on stage at the Bitcoin 2021 Convention, a crypto-currency convention held at the Mana Convention Center at Wynwood on June 04, 2021 in Miami, Florida.
Joe Rydle | Getty Images
Genesis’s institutional borrowers include Three Arrows Capital and Sam Bankman-Fried’s Alameda Research, both now bankrupt.
Representatives for Gemini and Genesis parent digital currency group declined to comment.
Gemini, which was founded in 2015 by Bitcoin Advocates Cameron and Tyler Winklevoss own an extensive exchange business that, if in jeopardy, could potentially weather an enforcement action.
In a tweet, Tyler Winklevoss said that Gemini is “working hard to recover the funds” and called the SEC’s action “completely counterproductive.”
But Genesis’ future is more uncertain, as the business is heavily focused on lending customer crypto and has already Engaged Restructuring Advisors, The crypto lender is part of DCG, a conglomerate controlled by Barry Silbert.
SEC officials said the possibility of DCG or Genesis bankruptcy had no bearing on its decision whether to pursue the charge.
This is the latest in a series of recent crypto enforcement actions led by Gensler following the collapse of Bankman-Fried’s crypto exchange FTX late last year. Gensler was widely criticized on social media and by MPs For the SEC’s failure to enforce safeguards on the nascent crypto industry.
Gensler’s SEC and the Commodity Futures Trading Commission, chaired by Rostin Benham, are the two regulators that oversee crypto activity in the US. enforcement action.
The SEC has now taken a similar action against bankrupt crypto lender BlockFi and Settled Last year. Earlier this month, coinbase Settled Historically inadequate Know Your Customer protocols with New York State regulators.
Since Bankman-Fried was indicted on federal fraud charges In December, the SEC filed five crypto-related enforcement actions.
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Correction: This story was updated to correct that a Gemini co-founder posted the firm’s response to the SEC charges.