SEC Charges Genesis and Gemini Over Illegal Crypto Sales

SEC Charges Genesis and Gemini

The U.S. Securities and Exchange Commission (SEC) has charged Genesis Global Capital LLC and Gemini Trust Company LLC with illegally selling securities. These charges stem from a crypto lending program that involved hundreds of thousands of investors. Genesis, a part of Digital Currency Group, collaborated with Gemini in December 2020 to offer customers an opportunity to loan their crypto assets to Genesis in exchange for interest.

Allegations of Securities Law Violations

Beginning in February 2021, the companies raised billions of dollars in crypto assets from investors through the Gemini Earn product. The SEC alleges that the firms violated securities laws by offering and selling crypto assets unlawfully. This action has led to significant regulatory scrutiny and highlights the growing concern over crypto lending practices.

Market Volatility and Investor Impact

In November 2022, Genesis informed investors of their inability to withdraw crypto assets due to market volatility and a liquidity crunch. At that point, Genesis held approximately $900 million in assets from 340,000 investors. This has left many investors unable to access their assets, prompting further investigation by the SEC into related violations.

Broader Industry Implications

The crypto industry faces increased regulatory challenges, as seen in February 2022 when BlockFi Inc. settled similar charges for $100 million. Amid these developments, Gemini and other Genesis creditors are seeking solutions to avoid potential bankruptcy scenarios akin to FTX. The tension is compounded by public disputes, with Gemini co-founder Cameron Winklevoss calling for the removal of DCG's CEO, Barry Silbert, accusing him of defrauding creditors. DCG has denied these allegations, labeling them as false and defamatory.