The US Securities and Exchange Commission (SEC) said on Thursday. cryptocurrency accused firms Genesis and Gemini of allegedly selling unregistered securities in connection with a high-yield product offered to depositors.
Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which offers up to 8% returns for customers.
According to the SEC, Genesis borrowed Gemini users’ crypto and sent some of the profits back to Gemini, which then refunded the remaining profits to its users, sometimes withholding a brokerage fee of over 4%. SEC officials said Genesis must register this product as a security offering.
SEC Chairman Gary Gensler Also Makes Statement About Gemini and Genesis
“The charges today are based on previous actions to make available to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws,” SEC chairman Gary Gensler said in a statement.
SEC officials said Gemini’s Earn program, supported by Genesis’ lending activities, meets the definition set by the SEC by including both an investment contract and a note. These two attributes are part of how the SEC evaluates whether an offering is a security.
Regulators are seeking permanent injunctions, damages and civil penalties against both Genesis and Gemini.
The two firms had a major battle over the $900 million in client assets that Gemini entrusted to Genesis as part of the Earn program, which was shut down this week.
Founded in 2015 by Bitcoin advocates Cameron and Tyler Winklevoss, Gemini has an extensive stock market business that, while in distress, is likely to survive a sanction action.
The future of Genesis is more uncertain, however, as the business is largely focused on lending customer cryptocurrencies and has already settled with bankruptcy advisors.
SEC officials said the likelihood of DCG or Genesis going bankrupt had no bearing on deciding whether to impose an enforcement action.
*Not investment advice.
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