SEC charges Gemini and Genesis for selling unregistered securities

• SEC charges Gemini and Genesis for offering lending services via the Earn program
• The commission previously charged BlockFi for similar offerings

The United States Securities and Exchanges Commission (SEC) has filed a charge against crypto exchange – Gemini and crypto lending platform – Genesis. The duo is accused of offering and selling unregistered securities through Gemini’s Earn program. Notably, this action comes at the peak of Gemini and Genesis’ public fallout. And, the cause for this too was the crypto exchange’s Earn program.

The complaint was filed in the U.S. District Court for the Southern District of New York. The firms are charged for violating sections 5 (a) and 5 (c) of the Securities Act of 1933. In a press release made today, the SEC said,

“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.”

A dive into Gemini’s history with Genesis

Genesis signed a deal with the crypto exchange in December 2020, wherein Gemini’s customers could loan their crypto to Genesis in exchange for interest. Following this, Gemini Earn was kickstarted in February 2021, with the crypto exchange acting like an agent between Genesis and its customers. The exchange, in return, received a fee, which went up to 4.29% on returns.

However, this came crumbling down after Genesis suspended withdrawals as a result of FTX’s collapse. The program, at the time, had 340,000 users and about $900 million in assets. The money continues to remain locked and both platforms are yet to decide on a final solution.

On the charge, SEC Chairman – 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”

Crypto lending firms under the SEC’s radar

Notably, this is not the first time the regulatory authority has turned its attention toward crypto lending firms. The commission has reportedly been investigating lending offerings since early 2022. Moreover, the focus, then too, was on whether or not these offerings can be considered securities offerings.

At the time, Gemini spokesperson, Carolyn Vadino stated that the commission had reached out to the platform enquiring about the offering. In addition, Vadino told that the exchange was “cooperating voluntarily with this industry-wide inquiry,” in a statement to Bloomberg.

Furthermore, the commission had charged BlockFi, a now-bankrupt crypto lending platform, for offering lending products without registration. The firm, however, decided to pay a fine to the commission. As a result, it was required to pay $50 million for the sale of unregistered securities and an additional $50 million to 32 states for similar charges. Out of this, the platform currently owes the regulator $30 million.

UPDATE:

Tyler Winklevoss – the co-founder of Gemini – released a statement on SEC’s charges against the crypto exchange on Twitter. Winklevoss stated that the lending program was regulated by the New York Department of Financial Services. He also stated that the platform has been in a discussion with the commission for over 17 months about the Earn program. The co-founder added,

“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.”