SEC Charges Genesis and Gemini With Selling Unregistered Securities, Winklevoss Fires Back
- The U.S. SEC alleged that Genesis and Gemini sold unregistered securities to retail investors through the exchange’s Earn program.
- Gemini co-founder Tyler Winklevoss fired back at the charges, calling the SEC’s actions “counterproductive” and optimized for “political points”.
Gemini founders Tyler Winklevoss (L) and Cameron Winklevoss (R) onstage during TechCrunch Disrupt, New York, May 6, 2015. Noam Galai/Getty Images for TechCrunch
The U.S. Securities and Exchange Commission (SEC) has alleged that crypto lender Genesis and crypto exchange Gemini sold unregistered securities through Gemini’s Earn program, the regulator said in a press release late on 12 January.
The SEC said Genesis entered into a deal with the Gemini in December 2020, agreeing to offer the exchange’s customers a yield-bearing crypto product. The two companies then began offering the Gemini Earn program to retail investors, which would lend their crypto to Genesis — with Gemini acting as the agent to facilitate the transaction — under the promise it would later repay the loan with interest. The regulator argued the Earn program constitutes an offer and sale of securities, which should have been registered with the SEC.
“Defendants offered and sold the Gemini Earn Agreements through the Gemini Earn Program without registering. As a result, investors lacked material information about the Gemini Earn program that would have been relevant to their investment decisions.”
SEC chairman Gary Gensler took to Twitter on Friday to explain the regulator’s actions, but was widely blasted by the community for his actions as the charges against Genesis and Gemini were filed long after Genesis disabled withdrawals, which impacted around 340,000 Earn customers. Crypto Twitter further pointed out that the SEC’s actions were only going to hinder Gemini’s efforts to reclaim its customer funds from Genesis.
The co-founder of the crypto exchange, Tyler Winklevoss, also fired back at the regulator via Twitter, sharing his disappointment about their actions and claiming the regulator was “optimizing for political points”. He further pointed out that the Earn program was regulated by the New York Department of Financial Services (NYDFS), and that Gemini had been in discussions with the SEC regarding the Earn program for “more than 17 months” now. The regulator never raised the prospect of any enforcement action, until after Genesis paused withdrawals.
- An investigation from the New York Attorney General’s office has allegedly found that Gemini was aware of Genesis’ weak financial position, but still lied to investors.
- The lawsuit is looking to ban DCG, Genesis, and Gemini from the New York financial industry, seek restitutions for investments, and the return of “ill-gotten gains”.
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- Bankrupt crypto lender Genesis is trying to recover around $500 million from DCG, and another 4,550.5 BTC from DCGI, which it had loaned to the two companies in 2022.
- Both DCG and DCGI requested that the debts were converted to open loans on 9 May, but Genesis declined both offers and demanded the repayment of the loans with interest.
- During an interview with FT, CEO Brian Armstrong said that before the lawsuit a SEC staff member had said that all crypto except BTC was security, and should be delisted.
- When asked how he came to that conclusion, the SEC staff member reportedly said “we’re not going to explain it to you, you need to delist every asset other that Bitcoin”.