The Securities and Exchange Commission (SEC) has charged crypto firms Genesis and Gemini with selling unregistered securities as part of its “Earn” program. The program began back in February of 2021 with crypto exchange Gemini partnering with crypto lender Genesis on Earn and promising profits up to 8 percent for customers that made use of it.
As noted by the SEC and reported by outlets like CNBC, Genesis then proceeded to loan out Gemini users’ crypto before sending a portion of the profits back to Gemini which then deducted an agent fee, in some cases over 4 percent, before returning profits back to its users.
During the first three months of 2022, Gemini reportedly raked in approximately $2.7 million in agent fees off Earn, with Genesis using Gemini users’ assets for “collateral for Genesis’ own borrowing” according to the SEC. At the same time, Genesis paid out $166.2 million in interest to its clients including Gemini on over $169.8 million in interest income.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” explained SEC Chair Gary Gensler in a statement. Gensler went on to remark that, "Today's charges build 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.”
Moving forward, the SEC is seeking “permanent injunctive relief, disgorgement, and civil penalties against both Genesis and Gemini.” Additionally, it has ongoing investigations into other potential securities law violations relating to Gemini’s Earn program. For more on the matter, be sure to read through the full report of the SEC’s charges against Genesis and Gemini from CNBC.
And to catch up with other financial news, check out some of our previous coverage as well including Crypto.com laying off 20 percent of its employees as a fallout of FTX shuttering, and how former FTX CEO and crypto winter poster child Sam Bankman-Fried was arrested back in December.