SEC Charges Genesis And Gemini For The Sale Of Unregistered Securities

As the crypto meltdown unwinds, the effects of diminishing liquidity have continued to shed light on many of the flawed methods and risk management strategies used by crypto lenders and other blockchain native projects.

In one of the latest developments regarding criminal activity prosecution directly tied to crypto platform schemes, the SEC published a press release stating that it has accused crypto companies, Genesis and Gemini of selling unregistered securities through a high-yield product offered to depositors on Thursday evening.

Washington D.C., Jan. 12, 2023 —

“The Securities and Exchange Commission today charged Genesis Global Capital, LLC and Gemini Trust Company, LLC for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.” The document disclosed.

Further stating that,

“Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors. Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”

In February 2021, cryptocurrency exchange, Gemini and crypto lending company, Genesis, collaborated on a product called Earn, which promised returns of up to 8% for customers.

The complaint further states that In the midsts of the Nov, 2022 infamous FTX bankruptcy event, “Genesis announced that it would not allow its Gemini Earn investors to withdraw their crypto assets because Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market’’

At the time, “Genesis held approximately $900 million in investor assets from 340,000 Gemini Earn investors. 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.”

SEC officials remarked that the possibility of a DCG or Genesis bankruptcy had no bearing on deciding whether to pursue a charge.

Road ahead

Since the U.S. Securities and Exchange Commission (SEC) appointed blockchain expert and MIT professor, Gary Gensler, as the new chairman of the organization back in 2021, the regulating institution has been working hard behind the curtains in order to address many of the issues derived from the massive development that the crypto/blockchain industry has been subject to throughout the years.

And although many market participants within the crypto space argue that government regulation goes completely against the decentralization ethos that the crypto space is seeking to portray, the fact is that private organizations benefiting from people buying financial instruments i.e, securities issued by them, should remain in line with the federal securities laws.