Infection of the crypto-ecosystem is confirmed. After FTX, Genesis and Gemini, two cryptocurrency brokerage and lending companies are being sued. The US securities regulator, the SEC, filed a lawsuit against two companies on Thursday for offering to provide loans in cryptocurrencies without registration with the competent authorities. The institution claims that Genesis then owned approximately $900 million in cryptocurrencies borrowed from approximately 340,000 customers. However, thanks to this offer, both companies “raised billions of dollars of assets in cryptocurrencies hundreds of thousands of investors,” the SEC said in a statement.
Other allegations related to the case may be announced at a later date, says the agency, which is currently trying to demonstrate that it regulates the sector well after the hype caused by the failure of FTX and Alameda Research on November 11, 2022.
A crypto finance company weakened by the FTX bankruptcy.
Genesis, a subsidiary of Digital Currency Group, is a brokerage platform for cryptocurrencies designed for professional investors. Founded by the Winklevoss brothers and popularized by the film The Social Network about the origins of Facebook, Gemini offers several financial products related to cryptocurrencies. According to the SEC complaint, the two companies entered into an agreement in late 2020 under which Genesis will offer Gemini customers the opportunity to lend their money. cryptocurrencies in exchange for interest in the Gemini Earn program. The twins took commissions along the way, while Genesis used cryptocurrencies at your discretion.
The problem is that some of the customer money deposited with Genesis was itself re-deposited with FTX. So when the Sam Bankman-Fried cryptocurrency exchange froze withdrawals and then went bankrupt within days, 30% of Genesis funds were tied to it. As a result, Genesis, which does not currently have the ability to refund all of its customers, has put a two-month freeze on withdrawals from its customers and Gemini customers. Genesis is currently trying to find solutions to recover 30% of blocked customer funds and specifically wanted to raise funds to do so, but was unsuccessful, according to Bloomberg.
Second problem: Genesis is in conflict with Digital Currency Group, another company specializing in crypto assets. Cameron Winklevoss borrowed money from Genesis without paying it back, which would block other customers from repaying. “Now it becomes clear that you used the blocking tactics in bad faith,” the businessman denounced in a scathing open letter posted on Twitter on January 2. “If you imagine that you can hide quietly in your ivory tower and everything will magically work out, or that this is someone else’s problem, you are swimming in fantasy,” he adds. In response, Barry Silbert, CEO of Digital Currency Group, stated that “DCG did not borrow $1.675 billion from Genesis. DCG has never missed Genesis interest payments and is aware of all outstanding loans.”
Faced with the liquidity crisis that Genesis is experiencing, in early January the company had to lay off 60 employees, or 30% of the staff. “As we continue to address unprecedented industry challenges, Genesis has made the difficult decision to reduce its global workforce,” a company spokesperson said in an email. In August, the company has already cut its staff by 20%.
SEC accuses Genesis of illegal fundraising
In its complaint, the SEC believes that Gemini Earn effectively equates to fundraising in the markets and as such should be registered with its services. Such a process is supposed to protect investors by making a large amount of information publicly available.
With these new fees, the SEC wants to “let the market and investors know that lending platforms cryptocurrencies and other intermediaries must comply with our well-tested securities laws,” Chairman Gary Gensler said in a statement. Both companies did not immediately respond to AFP inquiries.