The Securities and Exchange Commission (SEC) has filed a lawsuit against Genesis Global Capital and Gemini Trust Company for allegedly selling unregistered securities to retail investors in the United States. The SEC is seeking a permanent injunction, restitution of ill-gotten gains, as well as upfront interest and civil penalties.
Both companies have raised billions of dollars by offering and selling securities to US investors through the Gemini Earn crypto asset lending program.
Gemini and Genesis: A Brief History
Gemini, an American cryptocurrency exchange, and Genesis, a subsidiary of Digital Currency Group, partnered in December 2020 to offer cryptocurrency lending services. The SEC says Gemini charged fees for its services that sometimes amounted to 4.29% of the returns paid by Genesis to investors.
In November 2022, Genesis stopped paying interest to Gemini customers and halted withdrawals, saying it lacked sufficient liquid assets to meet withdrawal requests due to volatility in the crypto asset market. However, at the time, Genesis held approximately over $900 million in assets from over 340,000 Gemini investors, who were forced to cancel the Gemini Earn program in early January without being able to obtain reimbursement.
As a result, SEC Chairman Gary Gensler alleged that “Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors.” Gensler said the complaint is intended to show that crypto lending platforms and intermediaries must comply with US securities laws.
SEC Enforcement Division Director Gurbir S. Grewal said the recent collapse and suspension of the Genesis program underscores the need for such platforms to comply with federal securities laws. He also called on anyone affected by the Genesis program or who has information about it to contact the SEC’s Whistleblower program.
SEC pushes for more power over crypto firms
The complaint states that Genesis and Gemini were offering securities through the Gemini Earn program without registering them, in violation of federal securities laws. Additionally, the complaint states that the companies failed to disclose important information about the program to investors, including the risks of lending their crypto assets and the fact that the companies could use the assets as they saw fit without disclosing them to investors. investors.
Additionally, the complaint also claims that Genesis and Gemini falsely stated that the program was fully guaranteed when, in fact, it was not. The SEC also claims that the companies made false claims about the value of program assets.
The commission is seeking a permanent injunction, restitution of ill-gotten gains, as well as upfront interest and civil penalties. The regulator is also seeking to bar Genesis and Gemini from committing future securities violations — which might not be too far for Genesis if the rumors are true that it is considering bankruptcy.
The SEC said this case serves as a reminder that all crypto lending platforms and intermediaries must comply with US securities laws to protect investors and ensure a fair and transparent market. As SEC Chairman Gensler said, “It’s not optional. It’s the law.”
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