SEC sues Gemini and Genesis over crypto lending product
Claims it was offered as an unregistered security
The US Securities and Exchange Commission (SEC) has charged crypto lending firm Genesis and crypto exchange Gemini with offering unregistered securities through Gemini's "Earn" program.
In December 2020, Genesis, a subsidiary of Digital Currency Group (DCG), entered into a deal with Gemini to offer the exchange's customers the crypto asset-lending service. This was then launched in February 2021.
Under the agreement, Genesis loaned Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes as high as 4.29%, and returned the remaining profit to its users.
In a statement, the SEC said its complaint alleges that the Gemini Earn program constitutes an offer and sale of securities and should have been registered with the Commission.
“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,” said SEC Chair Gary Gensler.
The SEC further alleges that, in November 2022, Genesis announced that Earn users would not be allowed to withdraw their crypto assets “because Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market.”
At that time, Genesis held approximately $900 million in investor assets from 340,000 Gemini Earn investors, the SEC noted, adding:
”Gemini terminated the Gemini Earn program earlier this month. As of today, the Gemini Earn retail investors have still not been able to withdraw their crypto assets.”
Earlier this month, Gemini co-founder Cameron Winklevoss published an open letter to DCG CEO Barry Silbert regarding the withdrawal freeze. Silbert later wrote a letter to shareholders to address accusations against him.
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