SEC Charges Gemini and Genesis for Sale of Crypto Assets As Unregistered Securities

On Thursday, January 12, the U.S. Securities and Exchange Commission (SEC) charged crypto exchange Gemini and crypto lender Genesis for sale of unregistered securities to retail investors via the Gemini Earn crypto asset lending program.

This comes amid the ongoing feud between the two market players. Back in February 2021, Gemini and Genesis had joined hands for the Earn product, offering yields of up 8% to the customers.

As per the SEC, Genesis loaned users of Gemini and sent the profits back to Gemini. After that, the crypto exchange deducted the agent fee which was sometimes over 4% and distributed the remaining profits to its users. In a complaint filed in Manhattan federal court on Thursday, the SEC official said that Gemini should have registered this products as a securities offering.

Speaking on the development, SEC chair Gary Gensler said: “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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”

The SEC officials said that Gemini’s Earn Product meets the definition of both an investment contract and a note. Thus, it constitutes as a ‘security’. Furthermore, the SEC noted that the Earn Program has netted both the companies billions of dollars. As a result, the securities regulator is seeking disgorgement, injunctive relief, and civil penalties, on both Genesis and Gemini.

The SEC further added that “investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing”.

With Genesis suspending withdrawals on its platform last month due to liquidity crunch, Gemini has more than $900 million worth of assets frozen with the platform. A staggering 340,000 users have been affected by this freeze. “The U.S. retail investors who participated in the Gemini Earn program have suffered significant harm,” said the SEC.

As per market reports, crypto lender Genesis has been on the verge of bankruptcy. But the said that this will have no bearing on its filing of charges. Gemini co-founder Tyler Winklevoss has responded calling the SEC’s actions totally “counterproductive”.

In his Twitter thread, Tyler wrote: “It’s disappointing that the @SECGov chose to file an action today as @Gemini and other creditors are working hard together to recover funds. This action does nothing to further our efforts and help Earn users get their assets back. Their behavior is totally counterproductive”.

Tyler further added that Gemini was already in discussion with the SEC for 17 long months and that it Earn Program has been regulated by the NYDFS. “It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of 340,000 Earn users and other creditors,” he added.