SEC Charges Genesis and Gemini Following Crypto Collapse Contagion

The Securities and Exchange Commission (SEC) has charged two cryptocurrency companies with offering unregistered securities.

The complaint charges Genesis Global Capital and Gemini Trust Company and centers on the Gemini Earn crypto asset lending program, through which Gemini and Genesis drew hundreds of thousands of investors who weren’t provided necessary information and raised billions of dollars’ worth of crypto assets, the SEC said in a Thursday (Jan. 12) press release.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said in the release. “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.”

In response to the charge, Gemini Co-Founder and CEO Tyler Winklevoss said in a Twitter thread posted Thursday that the Earn program was regulated by the New York Department of Financial Services (NYDFS) and that Gemini has been in discussion with the SEC about the program for 17 months.

It wasn’t until after Genesis paused withdrawals in November that the SEC raised the prospect of enforcement action, Winklevoss added.

“We look forward to defending ourselves against this manufactured parking ticket,” Winklevoss added in the thread. “And we will make sure this doesn’t distract us from the important recovery work we are doing.”

Genesis did not immediately reply to PYMNTS’ request for comment.

The Gemini Earn program allowed Gemini customers to loan crypto assets to Genesis, which promised to pay them interest, according to the SEC press release.

Gemini facilitated the transaction and deducted an agent fee from the returns Genesis paid to the investors, while Genesis used the assets to generate revenue and pay the interest, the release said.

In November 2022, Genesis announced that it would not allow Gemini Earn investors to withdraw their crypto assets because it didn’t have enough liquid assets, according to the release.

As PYMNTS reported at the time, Genesis’ trading arm disclosed that it had $175 million in funds locked in its FTX trading account after the demise of the firm founded by Sam Bankman-Fried, and Genesis said it was pausing withdrawals from its lending arm as a result of “unprecedented market turmoil.”

Genesis and Gemini have since sparred over the status of the $900 million owed by Genesis to the Earn program.

Winklevoss said Thursday in his Twitter thread that Gemini and other creditors are working to recover the funds, and that the SEC action is “counterproductive.”

“This action does nothing to further our efforts and help Earn users get their assets back,” Winklevoss said in the thread.

The SEC’s complaint alleges that the Earn program should have been registered with the commission because it constituted an offer and sale of securities.

“The recent collapse of crypto asset lending programs and the suspension of Genesis’ program underscore the critical need for platforms offering securities to retail investors to comply with the federal securities laws,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the release. “As we’ve seen time and again, the failure to do so denies investors the basic information they need to make informed investment decisions.”