Wed. Feb 1st, 2023

Regulation HK

Financial Regulator

US SEC Files Charges Against Crypto Firms Gemini, Genesis

2 min read

The SEC says the Gemini Earn programme, which allowed investors to earn interest on their crypto assets, constituted the offer and sale of unregistered securities.

The US SEC (Securities and Exchange Commission) has charged crypto firms Genesis Global Capital and Gemini Trust Company for illegally selling unregistered securities to retail investors through the “Gemini Earn” crypto lending programme.

Part of crypto VC firm Digital Currency Group, Genesis entered into an agreement with Gemini in December 2020 to offer Gemini customers (including US-based retail investors) an opportunity to loan their crypto assets to Genesis in exchange for interest.

Beginning in February 2021, Genesis and Gemini began offering the Gemini Earn programme, raising billions of dollars’ worth of crypto assets from investors, the SEC said.

Genesis exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors, and Gemini deducted a fee of up to 4.29 percent for acting as an agent.

In November 2022, Genesis suspended withdrawals for Gemini Earn investors because it lacked sufficient liquid assets, amid volatility in the crypto asset market following the FTX collapse. At the time, Genesis held approximately USD 900 million in investor assets from 340,000 Gemini Earn investors, the SEC said.

Gemini terminated the Gemini Earn programme earlier this month, and Gemini Earn investors have not yet been able to withdraw their crypto assets.

The SEC says the Gemini Earn programme constitutes an offer and sale of securities under applicable law and should have been registered as such.

The SEC’s complaint, filed in the US District Court for the Southern District of New York, seeks permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.

Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are also ongoing, the SEC added.

In a Twitter post, Gemini co-founder and CEO Tyler Winklevoss called the SEC’s complaint “disappointing” and “counterproductive”, adding that the action “does nothing to further our efforts and help Earn users get their assets back.”

Genesis is said to owe creditors including the Gemini Earn investors more than USD 3 billion. The company has warned that it may file for bankruptcy if it cannot raise fresh cash.

Gemini co-founder Cameron Winklevoss has publicly called for Digital Currency Group’s board to oust CEO Barry Silbert, accusing him of defrauding Gemini customers and engaging in “bad faith stall tactics.”

Digital Currency Group has called Winklevoss allegations “malicious, false, and defamatory”, saying their “publicity stunt” is an attempt to “deflect blame”, and that Gemini is itself responsible for operating Gemini Earn and marketing the programme to its customers.

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