The Securities and Exchange Commission (SEC) of the United States has filed a charge against Gemini, a cryptocurrency exchange, and Genesis, a cryptocurrency lending platform. The pair is accused of using Gemini’s Earn programme to offer and sell unregistered securities. Notably, this action occurs at the height of the public outrage over Gemini and Genesis. The Earn programme at the crypto exchange was also to blame.
The complaint was filed in the U.S. District Court for the Southern District of New York. The firms are charged for violating sections 5 (a) and 5 (c) of the Securities Act of 1933. In a press release made today, the SEC said,
“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.”
A dive into Gemini’s history with Genesis
Genesis signed a deal with the crypto exchange in December 2020, wherein Gemini’s customers could loan their crypto to Genesis in exchange for interest. Following this, Gemini Earn was kickstarted in February 2021, with the crypto exchange acting like an agent between Genesis and its customers. The exchange, in return, received a fee, which went up to 4.29% on returns.
However, this came crumbling down after Genesis suspended withdrawals as a result of FTX’s collapse. The program, at the time, had 340,000 users and about $900 million in assets. The money continues to remain locked and both platforms are yet to decide on a final solution.
On the charge, SEC Chairman – Gary Gensler – said,
“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”
Crypto lending firms under the SEC’s radar
Notably, this is not the first time the regulatory authority has turned its attention toward crypto lending firms. The commission has reportedly been investigating lending offerings since early 2022. Moreover, the focus, then too, was on whether or not these offerings can be considered securities offerings.
At the time, Gemini spokesperson, Carolyn Vadino stated that the commission had reached out to the platform enquiring about the offering. In addition, Vadino told that the exchange was “cooperating voluntarily with this industry-wide inquiry,” in a statement to Bloomberg.
Furthermore, the commission had charged BlockFi, a now-bankrupt crypto lending platform, for offering lending products without registration. The firm, however, decided to pay a fine to the commission. As a result, it was required to pay $50 million for the sale of unregistered securities and an additional $50 million to 32 states for similar charges. Out of this, the platform currently owes the regulator $30 million.