Misfortunes never come singly, SEC accuses Genesis and Gemini of selling unregistered securities

The U.S. Securities and Exchange Commission (SEC) has charged Genesis and Gemini for offering and selling unregistered securities to retail investors through Gemini Earn, raising billions of dollars' worth of crypto assets from hundreds of thousands of investors. The SEC is conducting an investigation into their violations of securities laws and other entities and individuals involved in alleged misconduct. Subsequently, Gemini co-founder Tyler Winklevoss took to Twitter, claiming that the allegations from the SEC do not aid in the return of funds to Gemini Earn users and expressing disappointment.

SEC Views Earn Product as Securities

According to the complaint, in December 2020, DCG Group subsidiary Genesis reached an agreement with Gemini to offer Gemini customers, including U.S. retail investors, the opportunity to lend their crypto assets to Genesis in exchange for interest payments promised by Genesis. Starting from February 2021, Genesis and Gemini began offering the Gemini Earn program to retail investors. In the Gemini Earn program, investors provide their crypto assets to Genesis through Gemini acting as an agent, deducting agent fees, sometimes as high as 4.29%, from the returns paid to Gemini Earn investors by Genesis.

The SEC stated that the Gemini Earn product constitutes an unregistered securities offering and sale under the law, and should be registered with the SEC.

SEC Chairman Gary Gensler stated:

We allege that Genesis and Gemini offered unregistered securities to the public, evading disclosure requirements that protect investors. Today's charges show the market and investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so is in the best interest of protecting investors. It fosters trust in the market. It's the law, not a choice.

SEC Enforcement Division Director Gurbir S. Grewal further explained:

Our investigations in this space will be aggressive and ongoing, and we encourage anyone with information about this or other potential violations of the securities laws to come forward, including through our whistleblower program.

Prior to this, Gemini investors filed a class-action lawsuit in Manhattan federal court, alleging that the cryptocurrency exchange Gemini sold them interest-bearing accounts that were not registered as securities. It appears that this action has now garnered attention from regulatory authorities.

Tyler Winklevoss Expresses Disappointment on Twitter

Gemini co-founder Tyler Winklevoss took to Twitter to express disappointment over the SEC's charges, claiming that it does not help in the withdrawal of funds for Gemini Earn users.

Winklevoss reiterated that Gemini Earn is regulated by the New York State Department of Financial Services (NYDFS) and that Gemini had been in discussions with the SEC regarding this product for 17 months. After Genesis halted withdrawals on November 16, the possibility of any enforcement action by the SEC was never raised, but now the complaint has been made public directly through the media. Winklevoss emphasized that Gemini has always strived to comply with all relevant laws and regulations and will continue to work towards helping users recover their assets.

Lastly, Winklevoss also didn't forget to boost morale by mentioning the Bitcoin price hitting $19,000!

1/ It’s disappointing that the @SECGov chose to file an action today as @Gemini and other creditors are working hard together to recover funds. This action does nothing to further our efforts and help Earn users get their assets back. Their behavior is totally counterproductive.

— Tyler Winklevoss (@tyler) January 12, 2023