According to a Jan. 12, announcement, the U.S. Securities and Exchange Commission has accused Genesis and Gemini of violating their now-defunct Gemini Earn program.
Gary Gensler, chair of the SEC, stated:
We claim that Gemini and Genesis offered unregistered securities, bypassing disclosure requirements intended to protect investors. Today’s charges build on previous actions to make clear … that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.
The SEC declared that the Earn program was an unregistered sale and offer of securities. The regulator also claimed that Genesis and Gemini drew in billions of dollars of cryptocurrency from hundreds upon thousands of users.
Gemini and Genesis reached an agreement in December 2020. This led to the launch in February 2021 of Gemini Earn. Gemini users could lend assets to Genesis under a tri-party agreement in return for interest.
Genesis then forced a halt on Earn withdrawals in November 2022, citing a lack of liquidity resulting from market conditions at the time of FTX’s collapse. The SEC stated that Genesis Earn had $900 million worth crypto assets belonging 340,000 Gemini Earn users when withdrawals were halted. That issue has attracted plenty of controversy in recent months, and it made up part of the SEC’s complaint today.
The SEC also drew attention the questionable practices of Gemini during the service’s operation. Gemini received a fee of 4.29% from the regulator. It also alleged that Gemini pooled investors’ Earn funds with other funds and invested those funds at its discretion, as the Earn agreement did not clearly set state how investor assets could be used.
The SEC’s filed complaint also suggests that the Gemini Earn agreements were not registered with the SEC as required by federal securities laws. It additionally alleges that Gemini and Genesis made “selective and inadequate disclosures” and says that the two firms promoted Gemini Earn to the public as an investment.
The SEC wants to stop the companies from violating securities regulations again. The SEC also wants to make the companies pay interest and penalties for any gains they have made. Today’s filing does not indicate exactly how much Genesis and Gemini might owe to the SEC. Nor does it indicate precisely which services — if any — the two firms might be prevented from offering.
Earn users have been unable withdraw their funds for the past two months. The program was officially suspended on Tuesday. It is unclear whether the SEC’s actions will help users regain the funds in their accounts.
Tyler Winklevoss replies
Tyler Winklevoss retorted on Twitter, stating that the SEC’s behavior is counterproductive and that enforcement action was never discussed by them until withdrawals were paused. He also mentioned
“Despite these ongoing conversations, the SEC chose to announce their lawsuit to the press before notifying us. Super lame. It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of 340,000 Earn users and other creditors.”
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