On Thursday, 12 January, the Securities and Exchange Commission (SEC) announced that it had charged both cryptocurrency exchange Gemini and crypto lending platform Genesis for the “unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program”.
According to the SEC press release Gemini and Genesis entered into an agreement whereby Gemini customers, including retail investors, could loan their crypto to Genesis in return for interest. This programme was branded “Gemini Earn” and began in February 2021.
It appears that Genesis was allowed to use discretion regarding how the customer assets were used to generate revenue to pay interest on the loans.
In November 2022, Genesis then announced that it would not allow its investors in Gemini Earn program to withdraw their crypto assets because it lacked enough assets to meet withdrawal requests due to volatility in the crypto market. At that time, Genesis held around $900 million in assets from 340,000 investors, and the program was terminated earlier this month. As of today, the investors still have not been able to withdraw their crypto assets.
Gary Gensler, SEC Chair, said that “Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors”.