The Securities and Exchange Commission (SEC) filed charges against Genesis Global Capital, LLC and Gemini Trust Company, LLC for the illegal offering of securities to retail investors through the Gemini Earn crypto asset lending program. The investigation revealed that through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of cryptocurrency from hundreds of thousands of investors. The SEC is continuing to investigate other entities and persons related to the alleged misconduct, as well as any other securities law violations that may have occurred.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,
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.”
SEC Chair Gary Gensler
In December 2020, Genesis, a subsidiary of Digital Currency Group, entered into an agreement with Gemini to provide retail investors in the United States with the opportunity to loan their crypto assets to Genesis in exchange for interest. From February 2021, the two parties began offering the Gemini Earn program, whereby Gemini acted as the agent to facilitate the transaction and deducted an agent fee from the returns Genesis paid to investors. As alleged in the complaint, Genesis then used investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors.
The recent collapse of crypto asset lending programs and the suspension of Genesis’ program underscore the critical need for platforms offering securities to retail investors to comply with the federal securities laws,
As we’ve seen time and again, the failure to do so denies investors the basic information they need to make informed investment decisions. Our investigations in this space are very much active and ongoing and we encourage anyone with information about this matter or other possible securities law violations to come forward, including under our Whistleblower Program if applicable.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement
The SEC’s complaint against Genesis Capital, Inc. and its subsidiary Gemini Technologies, LLC, alleges that in November 2022, Genesis announced that it would not allow its Gemini Earn investors to withdraw their crypto assets due to a lack of sufficient liquid assets. This announcement came after the $900 million worth of investor assets from 340,000 Gemini Earn investors had been held by Genesis, but the investors still have not been able to withdraw their crypto assets even after the Gemini Earn program was terminated earlier this month. The complaint goes on to allege that the Gemini Earn program is considered an offer and sale of securities, and should have been registered with the SEC.