SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities

The Securities and Exchange Commission says Gemini and Genesis are trying to bypass requirements designed to protect investors.

The Securities and Exchange Commission (SEC) charged crypto exchange Gemini and crypto lender Genesis for the unregistered offer and sale of securities to retail investors, bypassing disclosure requirements designed to protect investors.

According to the prosecutors, Genesis and Gemini raised billions of dollars worth of crypto assets from hundreds of thousands of investors through the unregistered Gemini Earn crypto asset lending program. The SEC’s complaint alleges that the program constitutes an offer and sale of securities under applicable law and should have been registered with the Commission.

As alleged in the complaint, Genesis entered into an agreement with Gemini in December 2020 to offer Gemini customers an opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay interest. Beginning in February 2021, Genesis and Gemini began offering the Gemini Earn program to retail investors, whereby Gemini Earn investors tendered their crypto assets to Genesis, with Gemini acting as the agent to facilitate the transaction. Gemini deducted an agent fee, sometimes as high as 4.29%, from the returns Genesis paid to Gemini Earn investors. Genesis then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors.

The complaint further alleges that, in November 2022, 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.