The Securities and Exchange Commission on Thursday charged crypto firms Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.
Gemini, a crypto exchange, and Genesis, a cryptocurrency lender, teamed up in February 2021 on a Gemini product called Earn, which promoted returns of up to 8% to clients.
According to the SEC, Genesis lent Gemini users cryptocurrency and sent a portion of the profits back to Gemini, which then deducted agent fees, sometimes more than 4%, and returned the remaining profits to its users. SEC officials said Genesis should have registered this product as a securities offering.
“Today’s fee builds on past actions to make it clear to the market and the investing public that cryptocurrency lending platforms and other intermediaries must comply with time-tested securities laws,” SEC Chairman Gary Gensler said in a statement.
Securities and Exchange Commission officials said Gemini’s Earn program, backed by Genesis’ lending activities, meets the SEC’s definition by including both an investment contract and a memorandum. These two features are part of how the SEC evaluates whether or not an offer is a security.
The organizers are seeking permanent injunctive relief, removal, and civil penalties against both Genesis and Gemini.
The two companies participated in a High level fight Gemini entrusted more than $900 million in customer assets to Genesis as part of the Earn program, which closed this week.
Gemini, founded in 2015 by bitcoin Advocates Cameron and Tyler Winklevoss, have an extensive exchange business that, although boxed in, can withstand law enforcement action.
But the future of Genesis is uncertain, as the business is heavily focused on lending cryptocurrency to clients and has already engaged advisors to restructure. The crypto lender is a unit of the Barry Silbert Digital Currency Group.
SEC officials said the possibility of bankruptcy of DCG or Genesis had no bearing on deciding whether to pursue an indictment.
It’s the latest in a series of recent crypto enforcement actions Gensler led after Sam Bankman-Fried’s FTX collapse in November. Gensler has come under fire on social media and by legislators For the failure of the Securities and Exchange Commission to impose safeguards on the nascent crypto industry.
Gensler’s Securities and Exchange Commission and Commodity Futures Trading Commission, chaired by Rustin Benham, are the two regulators that oversee crypto activity in the US, and both agencies have filed complaints against Bankman-Fried, but the SEC has recently ramped up the pace and scope of enforcement action.
The SEC has filed a similar action against now-bankrupt crypto lender BlockFi and Settlement last year. earlier this month, Coinbase Settlement with New York State regulators over historically inadequate KYC protocols.
Since Bankman-Fried was indicted on federal fraud charges in December, the Securities and Exchange Commission (SEC) has filed five enforcement actions related to cryptocurrency.
This is breaking news. Check back for updates.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”