SEC charges Genesis and Gemini with offering and selling unregistered securities

The U.S. Securities and Exchange Commission (SEC) on Jan. 12 charged crypto exchange Gemini and crypto lending firm Genesis Global Capital with offering and selling unregistered securities.

The two companies entered into an agreement in December 2020 to provide the exchange company’s customers with a performance-based crypto product. After reaching an agreement, the product called Gemini Earn, which touted returns of up to 8 percent for customers, was launched in February 2021. According to the agreement, Gemini customers lend their crypto assets to Genesis, while the crypto lending company repays with interest.

Sec files complaint against Genesis and Gemini

While the SEC is filing a complaint against both Genesis and Gemini, the Commission claims that the Earn program constitutes the offer and sale of securities that should have been registered. The agency explained that after Genesis returned a portion of the loan proceeds to Gemini, Gemini deducted an agent fee. According to the SEC, the agent fee could sometimes be more than 4 percent, after which the crypto-currency exchange returns the balance to its users. SEC officials said Genesis should have registered the product as a securities offering.

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In addition, the SEC revealed that Genesis and Gemini generated hundreds of dollars worth of assets from hundreds of thousands of investors. The agency has opened an investigation to determine whether the joint venture violated other securities laws. It is also investigating whether other entities and individuals were involved in the “alleged misconduct“. SEC boss Gary Gensler commented:

“Today’s charges build on prior actions to make clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws. In doing so, they are best protecting investors. This promotes confidence in the markets. It’s not optional. It’s the law.”

Meanwhile, Genesis announced on November 10 that it had about $172 million in funds in FTX, which recently collapsed. Its parent company, Digital Currency Group (DCG), sent $140 million the same day to help “strengthen its balance sheet.“But that wasn’t enough, as Genesis halted its withdrawals a few days later, citing “unprecedented market turbulence.

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Cameron Winklevoss calls out DCG’s CEO

That’s how Gemini co-founder Cameron Winklevoss said Genesis and DCG owe exchange customers $900 million. The businessman wrote an open letter to DCG CEO Barry Silbert stating that 349,000 Gemini Earn users are affected by the withdrawal suspension. He added that Silbert has shown bad faith despite Gemini’s efforts to have a conversation about the situation.

Gemini’s Tyler Winklevoss responded to the SEC’s complaint on Twitter, saying:

“It is disappointing that the SEC chose to file an action today when Gemini and other creditors are working hard together to recover funds. This action does nothing to advance our efforts and help Earn users recover their assets. Their behavior is counterproductive.”

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