The settlement with Genesis signifies the SEC’s commitment to overseeing crypto lending platforms and safeguarding investor interests.
The Securities and Exchange Commission (SEC) announced a settlement agreement reached with Genesis Global Capital, LLC, on March 19, 2024. The settlement belongs to charges stemming from Genesis’s unregistered crypto lending platform Gemini Earn. As part of the resolution, Genesis will pay a civil penalty of $21 million.
However, the SEC’s receipt of this payment is possible upon the resolution of claims within the bankruptcy proceedings, including those of retail investors affected by the termination of the Gemini Earn program. The settlement also points out potential risks for investors when dealing with unregistered investment products.
SEC Asserts Genesis Neglected Registration
The Securities and Exchange Commission’s primary contention revolved around Genesis’s failure to register its Gemini Earn program, which permitted users to loan their digital assets in return for interest payments. The SEC claims Genesis neglected to register this program, circumventing crucial investor protection protocols mandated by securities laws.
The SEC Chair Gary Gensler underlined the significance of cryptocurrency lending platform regulations. According to Gensler, This settlement demonstrates to the industry that crypto lending platforms and other intermediaries must adhere to our securities laws.
“Today’s settlement builds 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,” said Gensler.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, echoed this sentiment, highlighting the risks associated with non-compliance:
“The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities laws.”
Fallout From The Gemini Earn Freeze
The SEC initiated legal proceedings against Genesis and Gemini Trust Company in January 2023. In May 2023, Gemini and Genesis submitted motions to dismiss the SEC’s case, alongside alternative motions seeking dismissal of the SEC’s requests for permanent relief and disgorgement against the firms. However, Judge Ramos denied all motions, allowing the case to proceed as filed.
The situation got even worse in November 2022 when Genesis froze withdrawals from Gemini Earn due to liquidity problems. Consequently, approximately 340,000 investors found themselves unable to access nearly $900 million in cryptocurrency assets. In the aftermath, Genesis declared Chapter 11 bankruptcy by SEC.
When Genesis’ bankruptcy concluded, three founders of the Gemini exchange, Winklevoss twins Tyler and Cameron, made a promise to give back 100% of funds from the Earn program, which was around $1.1 billion.
The current settlement prioritizes repayment to investors through the bankruptcy court. The Securities and Exchange Commission will only receive a portion of the $21 million penalty after these claims have been resolved. This raises questions about when, if ever, the SEC will obtain the full penalty amount.
The settlement with Genesis signifies the SEC’s commitment to overseeing crypto lending platforms and safeguarding investor interests. As the crypto market matures, robust regulations coupled with effective enforcement can foster trust and mitigate risks for all stakeholders involved.
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