Cryptographic lending crisis – SEC accused Gemini and Genesis of selling unregistered securities, – Kostyantyn Kryvopust


Commission with securities and exchanges of the United States ( SEC ) filed charges against a major crypto exchange Gemini and troubled company Genesis which is engaged in lending and trading cryptocurrencies.

About this is stated in the message of the regulator on January 12.

“[SEC] today charged Genesis Global Capital, LLC and Gemini Trust Company, LLC with the unregistered offering and sale of securities to retail investors through the Gemini Earn cryptocurrency asset lending program.”

The regulator claimed that the two companies raised “billions of dollars” worth of crypto-assets from “hundreds of thousands of investors” through this unregistered offering.

The complaint seeks a permanent injunction, recovery of ill-gotten gains and interest, and civil penalties.

The SEC complaint alleges that the Gemini Earn program is an offer and sale of securities and that it should have been registered with the regulator. According to SEC Chairman Gary Gensler,

“We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors. Today’s charges build on previous actions to make it clear to the market and investors that crypto-lending platforms and other intermediaries must comply with our requirements. time-tested securities laws.”

We will remind you that in December 2020, Genesis, which is the parent company Digital Currency Group (DCG) by Barry Silbert, has partnered with Gemini, founded by the Winklevoss twins, to allow the exchange’s customers to lend their Genesis cryptocurrency in exchange for interest.

In February 2021, Genesis and Gemini launched the Gemini Earn program for retail investors, under which Gemini deducts an agency fee from the income that Genesis pays to Gemini Earn investors. “As alleged in the complaint, Genesis exercised discretion in how to use investors’ crypto assets to generate income and pay interest to Gemini Earn investors,” the press release said.

In November 2022, Genesis announced that Gemini Earn investors could no longer withdraw their cryptocurrencies due to a lack of sufficient liquid assets due to market volatility. According to the complaint, Genesis at the time held about $900 million in assets from 340,000 Gemini Earn investors.

Gemini ended the Gemini Earn program a few days ago, but “to date, retail Gemini Earn investors are still unable to withdraw their crypto assets,” the SEC said.

Gemini’s Earn, backed by Genesis Lending, met the SEC’s definition of including both an investment contract and a note, as those two features are part of how the SEC evaluates whether an offering is a security. informs CNBC.

According to that report, cited by the Commission, in the first three months of 2022, Gemini earned about $2.7 million in agent fees from Earn, and during the same period, Genesis paid $166.2 million in interest to customers, including Gemini , for $169.8 million. interest income.

The twins answer

In a tweet, Tyler Winklevoss called the SEC’s actions “counterproductive” and claimed that Gemini has been in discussions with the SEC about the Earn program for months.

He wrote that

“Despite these ongoing conversations, the SEC decided to announce its lawsuit to the press before notifying us. Very bad. Unfortunately, they score political points instead of helping us advance the cause of 340,000 Earn users and other lenders. [. ..] We look forward to defending against this bogus parking fine.”

Meanwhile, CNBC reported that SEC officials said the possibility of DCG or Genesis going bankrupt had no bearing on the decision to file charges.

There will be more

And that doesn’t seem to be all the bad news coming to the crypto industry, as the SEC states that,

“Investigations are ongoing into other securities law violations and into other organizations and individuals involved in the alleged wrongdoing.”

Gurbir S. Grewal, director of the SEC’s enforcement division, said the recent curtailment of crypto asset lending programs, as well as the suspension of the Genesis program, show that there is a “critical need” for platforms that offer “securities.” to retail investors” to comply with federal securities laws.

Grewal added that

“Our investigations in this space are very active and ongoing, and we encourage anyone with information about this matter or other potential securities law violations to report it, including through our Whistleblower Program, if possible.”

The SEC’s whistleblower program was created by Congress to provide monetary incentives to individuals who report possible violations of federal securities laws. “Eligible whistleblowers” may be awarded between 10% and 30% “of monetary penalties recovered in actions brought by the SEC and related actions brought by certain other regulatory and law enforcement agencies,” according to the press release.

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