Gemini and Genesis Sued by SEC over asset-lending Program

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Key Takeaways:

  • The authority claims that companies raised billions fraudulently.
  • The program rewards users with interest for lending them cryptocurrency.

According to a statement by the Securities and Exchange Commission on Thursday, the companies used the so-called Gemini Earn scheme to illegally raise billions of dollars from tens of thousands of investors. The SEC claimed that the product in question amounted to offering unregistered securities since it allowed clients to loan out their assets in exchange for interest payments.

To give customers passive returns on their coins in exchange for the ability to lend the tokens out, Gemini introduced Earn in February 2021. The program’s holdings had surpassed $3 billion by August of that year and offered rates far higher than those of conventional bank accounts.

Since mid-November, customers have been unable to withdraw funds from their Earn accounts. In addition, Gemini co-founder Cameron Winklevoss recently charged Barry Silbert, the creator of Genesis’ parent company Digital Currency Group Inc., with hindering efforts to find a solution. Silbert has refuted the assertion.

Gemini’s other co-founder Tyler Winklevoss said the company would defend itself against the SEC’s complaint, which he compared to a “manufactured parking ticket,” in a series of tweets on Thursday. According to him, the SEC and Gemini had been discussing Earn for 17 months, but enforcement action was brought up once Genesis stopped withdrawals from the program. In a statement, SEC Chair Gary Gensler, who has frequently claimed that many cryptocurrency firms are selling items that have to be registered with the government, 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.”

The troublesome yield-bearing Gemini Earn program, which tens of thousands of American investors trusted with their cryptocurrency, came under fire from the investment authority. By lending deposits to Genesis, who then lent them out again, Gemini generated yields of billions of dollars in cryptocurrency.

However, the SEC said that Genesis’ decision to stop allowing lending withdrawals in November placed around 340,000 Gemini Earn users and $900 million in cryptocurrency in limbo. The popular program was alleged to be unregistered security by the regulator. The complaint stated:

“Defendants offered and sold the Gemini Earn Agreements through the Gemini Earn Program without registering. As a result, investors lacked material information about the Gemini Earn program that would have been relevant to their investment decisions.”

The initiative benefited from the general perception among users that the exchange had a conservative attitude to risk, despite Earn’s terms of service warning customers that they could lose all of their money. The sudden and spectacular collapse of the cryptocurrency exchange FTX in November, which froze customer withdrawals and fresh loan originations, notably hurt Genesis Global Capital. 

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