The Securities and Exchange Commission on Thursday accused crypto firms. Genesis and Gemini of selling unregistered securities in connection . With a high-yield product offered to depositors.
Gemini, a crypto exchange. And Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn. Which yields up to 8% for customers.
According to the SEC, Genesis makes crypto loans to . Gemini users and sends a part of the profits back to Gemini, which then deducts an agent fee. Sometimes more than 4%, and returns the remaining profits to its users. Genesis should have registered that product as a securities offering, SEC officials said.
“Today’s charges, based on previous actions. Make it clear to the market and the investing public. That crypto lending platforms and other intermediaries must follow. our time-tested securities laws,” SEC Chair Gary Gensler said in a statement.
The Gemini Earn program, backed by Genesis’ lending program, met the . SEC’s definition of an investment agreement and a note, SEC officials said. These two characteristics are part of how the . SEC evaluates whether an offering is a security.
Regulators are seeking permanent injunctive relief. Disgorgement and civil penalties against both Genesis and Gemini.
Gemini has been engaged in a high-profile battle over $900 million in. Customer assets entrusted to Genesis as part of . Its Earn program, which shut down this week.
Gemini, which was founded in 2015 by bitcoin advocates Cameron and . Tyler Winkleves, has an extensive exchange business that,
while troubled. Could likely weather an enforcement action.
But Genesis’ future is more uncertain, as the business has focused on . Consumer crypto lending and has already hired restructuring advisers. The crypto lender is a unit of Barry Silbert’s Digital Currency Group.
SEC officials said the possibility of a . DCG or Genesis bankruptcy had no bearing on the decision whether to pursue a charge.
This is the latest in a series of recent crypto enforcement actions led by. Gensler following the fall of Sam Bankman-Fried’s FTX in November. Gensler was criticized by social media and lawmakers for the. SEC’s failure to impose protections on the nascent crypto industry.
Gensler’s SEC and the Commodity Futures Trading Commission, chaired by . Rustin Benham, are the two regulators overseeing crypto activity in the United States. Both companies filed complaints against . Bankman-Fried, but the SEC, of late, has increased the pace and scope. enforcement action.
The SEC brought a similar action against now-bankrupt crypto lender . BlockFi and settled last year. Earlier this month, Coinbase settled with . New York state regulators over inadequate you-customer protocols.
Since Bankman-Fried was indicted on federal fraud charges in December. The SEC has filed five crypto-related enforcement actions.