The US Securities and Exchange Commission (SEC) has filed charges against Genesis and Gemini accusing the two of selling unregistered securities through the Gemini Earn product.
According to the SEC, the Gemini Earn allowed Gemini and Genesis to earn billions of dollars from investors despite the product being unregistered.
Unregistered lending partnership
Gemini introduced the Gemini Earn product in February 2021 and the product ran until January 8 2022. At the same time, Gemini had a partnership with Genesis, which is a subsidiary of Digital Currency Group (DCG). The partnership allowed Gemini customers to earn yield by lending their crypto assets to Genesis.
The SEC however claims that the two firms (Genesis and Gemini) misrepresented their business model by advertising returns of up to 8% to clients without first registering the partnership as a lending partnership with the relevant authorities.
To make matters worse, Genesis found itself in turmoil after the FTX’s collapse and even paused withdrawals due to liquidity issues. According to open letters written by Cameron Winklevoss, the co-founder of Gemini Earn, Genesis currently owes $900 million to 340,000 users of the Earn product.
The SEC also claims that the “US retail investors who participated in the Gemini Earn program have suffered significant harm.” The SEC Chair Gary Gensler 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.”
Gemini co-founder has however said that Gemini will defend itself saying that SEC claims are “parking ticket.”