In a January 12 press release, the SEC says it has filed a complaint against Gemini and Genesis. Reason cited by US stock market cop: Two entities would sell unregistered securities to retail investors under the crypto platform’s Earn program.
Earn Gemini/Genesis Product Under SEC Target
Highly profitable crypto products have never enjoyed a good reputation from regulators in the United States. All the companies offering them (BlockFi, Nexo, Celsius and even Coinbase) have had problems with local authorities. Often with a fatal outcome for the offer, when the issuers themselves did not put the key under the door (but that’s another topic).
In this regard, the Twins also did not escape the vigilance of the SEC, but within the framework of a dialogue that was a priori quite friendly. Now that the Winklevoss brothers’ exchange is going through hard times, the Securities and Exchange Commission has decided to speed up the process by filing a lawsuit for illegal fundraising. A faux pas in which she would be fairly common: she would inform the press before notifying interested parties.
Through this unregistered offering, Genesis and Gemini have raised billions of dollars in cryptocurrencies from hundreds of thousands of investors.
US Securities and Exchange Commission release
In support of its complaint, the federal agency carefully recalls the operating mechanism of Gemini’s Earn product, launched in early 2021, when the cryptocurrency hype was at its height.
The nature of the SEC complaint against Gemini and Genesis
Under an agreement between the exchange and Genesis Global Capital, the former loaned its clients’ assets listed on Earn to the latter so that they could receive a fee that could rise to 8%.
The SEC then believes that Gemini played the role of “transaction facilitation agent” while rewarding itself with up to 4.29% of payments made by Genesis to its users along the way. With regard to the latter, he used investors’ cryptocurrencies at will to generate income, in particular to pay out participants in the Earn program. As such, the SEC’s opinion is final.
We allege that Genesis and Gemini offered unregistered securities to the public in circumvention of disclosure requirements designed to protect investors.
Gary Gensler, Chairman of the SEC, in a press release
The “counterproductive” reaction of the American gendarme
A reaction that may seem a bit belated as the regulator could have intervened long before investors were actually hurt. But, seemingly taking on this heavy file in the current tense environment, he wants to establish himself as the top regulator of the crypto industry, according to the former SEC lawyer. Above all, he will seek to rebuild his image after being the target of criticism accusing him of being passive, if not complicit, and will in fact become largely responsible for the current chaos in the crypto industry.
Because it was actually a trade that seemed to last until FTX collapsed. Genesis, which suffered a platform crash, then blocked its redemption, forcing Gemini, in turn, to freeze withdrawals on Earn. An ongoing situation that resulted in Cameron Winklevoss’ severe public reprimand of Barry Gilbert, CEO of Digital Currency Group (DGC), the parent company of Genesis.
To date, Genesis owes more than $1.8 billion to its creditors, a figure revalued at $3 billion according to the Financial Times, including $900 million from Gemini Earn’s 340,000 customers.
Tyler Winklevoss quickly went public on Twitter, condemning the “counterproductive” behavior of the Securities and Exchange Commission and also recalling that the target product is regulated by the New York State Department of Financial Services.
It is disappointing that the SEC decided to file a lawsuit today as Gemini and other lenders work hard to get the funds back. This action does not further our efforts to help Earn users recover their assets.
The SEC complaint, filed in the U.S. District Court for the Southern District of New York, “seeks permanent injunctive relief, unlawful proceeds, pre-judgment interest, and civil penalties.” At the same time, in line with its new offensive strategy, the body is investigating financial interactions within the DGC.