SEC Charges Genesis and Gemini for Unlawful Cryptocurrency Lending Program

• The U.S. Securities and Exchange Commission (SEC) has charged Genesis Global Capital LLC and Gemini Trust Company LLC for unlawfully offering securities to a large number of investors through their cryptocurrency lending program.
• These companies started providing the Gemini Earn program to individual investors, in which investors would transfer their cryptocurrency assets to Genesis, with Gemini acting as a facilitator for the transaction.
• The SEC’s complaint states that the Gemini Earn program is viewed as an offering and sale of securities under relevant laws and it should have been registered with the Commission, therefore Gemini and Genesis broke securities laws by offering and selling cryptocurrency assets through the Gemini Earn program bypassing disclosure regulations established to safeguard investors.

The U.S. Securities and Exchange Commission (SEC) has filed charges against Genesis Global Capital LLC and Gemini Trust Company LLC for unlawfully offering securities to a large number of investors through their cryptocurrency lending program. The SEC’s complaint alleges that Genesis and Gemini violated securities laws when they started providing the Gemini Earn program to individual investors without registering the offering with the Commission.

In December 2020, Genesis (a subsidiary of Digital Currency Group) and Gemini entered into an agreement to offer Gemini clients the opportunity to lend their cryptocurrency assets to Genesis in return for interest. Starting in February 2021, Gemini and Genesis started providing the Gemini Earn program to individual investors, which would allow investors to transfer their cryptocurrency assets to Genesis, with Gemini acting as a facilitator for the transaction. Gemini deducted a fee, at times as high as 4.29 percent, from the returns Genesis paid to Gemini Earn investors.

The SEC’s complaint states that the Gemini Earn program is viewed as an offering and sale of securities under relevant laws and it should have been registered with the Commission. By providing the Gemini Earn program to investors without registering the offering, Gemini and Genesis were bypassing disclosure regulations that were established to safeguard investors.

In November 2022, Genesis informed its investors that due to market volatility, the company was suspending payments and suspending the Gemini Earn program. The SEC alleges that Genesis and Gemini failed to provide adequate disclosure to their investors about the risks associated with their investment, such as the risk of market volatility and changes in the value of the cryptocurrency assets.

The SEC seeks to impose a financial penalty against Genesis and Gemini and also to prohibit them from offering securities without complying with the federal securities laws. The SEC also seeks to enjoin Genesis and Gemini from future violations of the federal securities laws.

It is important for investors to be aware of the risks associated with investing in cryptocurrency and to be aware of the laws that regulate the offering and sale of securities. By ensuring that companies comply with the disclosure regulations established to protect investors, the SEC is helping to ensure that investors have access to the information they need to make informed decisions.