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The U.S. Securities and Exchange Commission (SEC) has charged crypto exchange Gemini and crypto lender Genesis Global Capital, a subsidiary of Digital Currency Group (DCG). “Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors,” the SEC alleged.
The U.S. Securities and Exchange Commission (SEC) announced Thursday that it has 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.” Genesis is part of a subsidiary of Digital Currency Group (DCG). Noting that the investigation is ongoing, the regulator alleged:
Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors.
The SEC described that in December 2020, Genesis entered into an agreement with Gemini to offer Gemini customers, including retail investors in the U.S., “an opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay interest.”
The two companies offered the Gemini Earn cryptocurrency lending program to retail investors between February 2021 and November 2022, the securities watchdog continued, adding: “More than 50 crypto assets were eligible to be invested in the Gemini Earn program, including bitcoin, ether, USD Coin, and dogecoin.”
According to the SEC:
Gemini Earn investors tendered their crypto assets to Genesis, with Gemini acting as the agent to facilitate the transaction. Genesis then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors.
The SEC detailed that Genesis announced in November last year that Gemini Earn investors 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 added, noting:
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.
Last week, Gemini co-founder Cameron Winklevoss published an open letter to DCG CEO Barry Silbert regarding the withdrawal freeze. In a follow-up letter, he demanded the resignation of Silbert. The DCG boss then wrote a letter to shareholders to address accusations against him.
Following the announcement of the SEC lawsuit against the two crypto firms, Tyler Winklevoss, another Gemini co-founder, took to Twitter to slam the securities watchdog. He explained that the Gemini Earn crypto lending program was regulated by the New York Department of Financial Services (NYDFS).
In addition, Winklevoss revealed: “We’ve been in discussions with the SEC about the Earn program for more than 17 months … They never raised the prospect of any enforcement action until after Genesis paused withdrawals on November 16th.” He opined:
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,” the Gemini co-founder concluded.
