SEC charges Genesis and Gemini with violating the Securities Act
On January 12, the regulator published an indictment against crypto lender Genesis Global Capital and cryptocurrency exchange Gemini Trust. According to the SEC, companies illegally offered and sold securities through the Gemini Earn program.
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According to US Securities and Exchange Commission Chair Gary Gensler, the companies acted “bypassing disclosure requirements designed to protect investors.” The official claims that with such actions, the SEC continues to remind the crypto industry representatives how important it is to comply with current legislation.
“Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”
According to the lawsuit, Genesis and Gemini are accused of violating the Securities Act and illegally profiting from the Gemini Earn project.
The launch of a crypto lending program has allowed companies to raise billions of dollars in crypto assets from retail users. They transferred their funds to Genesis, while Gemini acted as an intermediary for transactions and received an agency fee from the income paid to investors.
It is stated that Genesis independently disposed of the assets received to generate income and accrue interest to users. Fluctuations in the market in the fall of 2022 led to the inability of Gemini Earn investors to withdraw funds. The official reason was the lack of liquid assets at Genesis. 340 thousand users who invested about $900 million became victims of circumstance.
The Gemini Earn program halted withdrawals on November 16, 2022 and was officially terminated on January 8, 2023, as clients of the crypto exchange learned from the mailing list. According to the e-mail, Genesis is responsible for returning all assets outstanding in the program.
“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”, said Gurbir S. Grewal, Director of the SEC's Division of Enforcement.
Tyler Winklevoss responded to the regulator's lawsuit on his Twitter, expressing disappointment and calling such tactics counterproductive. In particular, the entrepreneur emphasized that the SEC “never raised the prospect of any enforcement action until AFTER Genesis paused withdrawals on November 16th.”
Winklevoss called it “super lame” that the SEC notified the press about the lawsuit, before notifying Gemini. He is sure that in this way the SEC is only trying to earn additional political points instead of real help to the affected depositors.
“We look forward to defending ourselves against this manufactured parking ticket. And we will make sure this doesn’t distract us from the important recovery work we are doing”, Gemini CEO concluded.
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