The unregistered offering and sale of securities to retail investors through the Gemini Earn crypto asset lending program was charged by the Securities and Exchange Commission (SEC) today against Genesis Global Capital, LLC and Gemini Trust Company, LLC.
The SEC claims that Genesis and Gemini raised billions of dollars’ worth of cryptocurrency assets from tens of thousands of investors through this unregistered sale. Investigations into additional alleged transgressions of the securities laws, as well as those of other people and companies, are still underway.
According to the complaint, Genesis, a division of Digital Currency Group (DCG), and Gemini reached an agreement in December 2020 to give Gemini users, including American retail investors, the chance to lend Genesis their crypto assets in exchange for Genesis’ guarantee to pay interest.
Genesis and Gemini launched the Gemini Earn program in February 2021 for retail investors. Gemini Earn participants offered their crypto assets to Genesis, with Gemini acting as the agent to complete the transaction. Genesis paid investors in Gemini Earn returns, but Gemini took an agency fee from those profits, which is estimated to be as high as 4.29%.
The complaint also alleges that Genesis used investors’ cryptocurrency assets at its discretion to generate income and pay interest to Gemini Earn investors.
Allegedly, Genesis declared in November 2022 that it would not permit Gemini Earn investors to withdraw their cryptocurrency because Genesis lacks enough liquid assets to cover withdrawal requests during the wake of market turbulence. At that time, Genesis had 340,000 Gemini Earn investors’ funds totaling almost $900 million.
The Gemini Earn program initially paused customer withdrawals on November 16th and was then discontinued by Gemini earlier this month. Retail Gemini Earn investors are still unable to withdraw their cryptocurrency as of today.
According to the SEC’s complaint, the Gemini Earn program violates federal law by offering and selling securities and should have been registered with the Commission.
SEC Chair Gary Gensler stated that the SEC alleges that Genesis and Gemini sold unregistered securities to the general public without complying to disclosure requirements intended to protect investors.
Gensler added that “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.”
Genesis and Gemini are charged for violations of Sections 5(a) and 5(c) of the Securities Act of 1933 which was submitted to the U.S. District Court for the Southern District of New York. The complaint seeks civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and permanent injunctive relief.