The US securities regulator on Thursday charged Genesis Global Capital and crypto exchange Gemini with offering and selling unregistered securities to retail investors through a program that promised high interest rates on deposits.
The Securities and Exchange Commission claimed that Genesis, a subsidiary of Digital Currency Group, and Gemini, which is run by Tyler and Cameron Winklevoss, raised billions of dollars of crypto assets from hundreds of thousands of investors through unregistered offers, using Gemini’s Earn crypto asset-lending program and “bypassing disclosure requirements designed to protect investors.”
“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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law,” SEC Chair Gary Gensler said in a statement.
The complaint says that Genesis partnered with Gemini on the program that let customers loan their crypto assets to Genesis in exchange for high interest payments. Gemini facilitated the transactions and deducted an agent fee, as high as 4.29%, from the returns it received from Genesis, according to the SEC.
In November, citing a liquidity crunch following volatility in the crypto market after the collapse of major crypto exchange FTX, Genesis froze withdrawals, leaving about 340,000 Earn customers unable to take out about $900 million in crypto assets.
“The recent collapse of crypto asset lending programs and the suspension of Genesis’ program underscore the critical need for platforms offering securities to retail investors to comply with the federal securities laws,” the director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said.
The regulator’s complaint seeks the return of any “ill-gotten gains” plus interest, and any civil penalties.
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