SEC charges Crypto firms Genesis and Gemini with selling unregistered securities

The Securities and Exchange Commission (SEC) finally dropped the hammer on crypto lender Gemini and Gemini, a crypto exchange founded by the Winklevoss twins. SEC on Thursday charged Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.

In February 2021, Gemini and Genesis partnered with Gemini on a digital asset product called Earn, which touted yields of up to 8% for customers. According to the SEC, Genesis then loaned Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users.

“Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors. Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing,” SEC said in a news release.

Due to the nature of the sales, SEC officials said Genesis should have registered that product as a securities offering. The two crypto companies have been engaged in a high-profile battle over $900 million in customer assets that Gemini gave to Genesis as part of the Earn program, which shut down this week.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” said SEC Chair Gary Gensler. “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 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. “As we’ve seen time and again, the failure to do so denies investors the basic information they need to make informed investment decisions. Our investigations in this space are very much active and ongoing and we encourage anyone with information about this matter or other possible securities law violations to come forward, including under our Whistleblower Program if applicable.”

As we reported last week, Cameron Winklevoss, who founded crypto exchange Gemini Trust Co with his twin brother, accused Digital Currency Group (DCG) CEO Barry Silbert of “bad faith stall tactics” and asked him to commit to resolving $900 million worth of disputed customer assets by January 8.

Gemini has a crypto lending product called Earn in partnership with DCG’s crypto firm Genesis. Genesis halted customer withdrawals in November, following the collapse of major crypto exchange FTX.

Winklevoss brothers’ Gemini crypto exchange became the third crypto company to suspend customers’ withdrawals as the collapse of FTX contagion spreads across the crypto market. In November 2021, the Gemini crypto exchange suspended withdrawals on its interest-bearing accounts. Gemini said it paused withdrawals on its interest-bearing Earn accounts as a result of changes to the Genesis lending partner program.

In an open letter to Silbert that was posted on Twitter, Winklevoss wrote: “However, it is now becoming clear that you have been engaging in bad faith stall tactics. We are asking you to publicly commit to working together to solve this problem by January 8th, 2023.”

Gemini was founded in 2015, by brothers Cameron and Tyler Winklevoss, to build a bridge to the future of money. Its goal is to build a world-class digital asset exchange and custodian based in the United States. Gemini dubs itself a next-generation cryptocurrency exchange and a platform for buying, selling, storing, and earning cryptocurrencies including bitcoin and ether, and DeFi (Decentralized Finance) tokens. Gemini also allows customers to buy, sell, and store digital assets.