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SEC files charges against crypto exchange Gemini and lender Genesis

Digital Currency Group (DCG) subsidiary Genesis entered into a deal with Gemini in December 2020 allowing the former to offer Gemini’s customers the yield-bearing crypto product Gemini Earn.

Image by: Wikimedia Commons

Fri, 13 Jan 2023, 07:13 am UTC

Crypto exchange Gemini and crypto lender Genesis are facing charges filed by the United States Securities and Exchange Commission (SEC) on January 12. The regulator accused the firms of offering unregistered securities related to Gemini’s crypto asset lending program, Gemini Earn, according to Cointelegraph.

Digital Currency Group (DCG) subsidiary Genesis entered into a deal with Gemini in December 2020 allowing the former to offer Gemini’s customers the yield-bearing crypto product Gemini Earn. The product was launched in February 2021.

The arrangement between the two firms allowed the exchange’s customers to loan their crypto assets to Genesis, which would repay it with interest. However, Genesis had full control on how it deployed the assets to earn a yield and repay Gemini’s customers.

“We @SECGov charged Genesis & Gemini for the unregistered offer & sale of crypto asset securities through Gemini Earn,” SEC Chair Gary Gensler posted on Twitter on January 13, 2023. “Crypto intermediaries need to comply with our securities laws. This protects investors. It promotes trust in markets. It’s not optional. It’s the law.”

The SEC said in its complaint that the Gemini Earn program constitutes an offer and sale of securities. This means that the product should have been registered with the commission.

The SEC Chair added that the 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.”

Genesis revealed on November 10, 2022, that around $175 million worth of funds were in FTX, which was already facing a liquidity crisis at that point. Digital Currency Group (DCG) attempted to strengthen Gemini’s balance sheet by sending $140 million on the same day.

However, it was not enough to calm down panicky investors. Genesis decided to suspend withdrawals on November 16, 2022, due to “unprecedented market turmoil.”

In a January 10, 2023, open letter, Gemini co-founder Cameron Winklevoss claimed that more than 340,000 of the crypto exchange’s clients participated in the Gemini Earn program, which shut down on January 8. He added that Genesis and DCG owe $900 million to Gemini’s clients who were part of the program.

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