The Securities and Exchange Commission has announced charging Genesis Global Capital, LLC and Gemini Trust Company, LLC for the unregistered offer and sale of securities to retail investors.
According to the US regulator, the two crypto companies raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors through the Gemini Earn crypto asset lending program. The SEC noted that there is a ongoing investigation into other securities law violations and into the involvement of other entities and persons.
The official complaint alleges that Genesis, part of a subsidiary of Digital Currency Group, agreed to offer Gemini customers, including retail investors in the US, an opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay interest. The agreement started in December 2020 and in February 2021 the companies began offering the Gemini Earn program to retail investors. Gemini took an agent fee, sometimes as high as 4.29%, from the returns Genesis paid to Gemini Earn investors.
Furthermore, SEC highlighted that in November 2022, Genesis announced it will not allow its Gemini Earn investors to withdraw their crypto assets as it lacked sufficient liquid assets due to volatility in the crypto asset market.
The US regulator claims that the Gemini Earn program is essentially an offer and sale of securities under applicable law and should have been registered with the Commission.
SEC Chair Gary Gensler, commented:
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.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said:
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.
