U.S. securities regulators on Thursday charged Genesis Global Capital and crypto exchange Gemini Trust Co. with offering and selling of unregistered securities to retail investors, bypassing disclosures and other requirements aimed at protecting market participants.
Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors through unregistered offers, using a crypto asset-lending program called Gemini Earn, the Securities and Exchange Commission said.
The complaint seeks the return of any “ill-gotten gains” plus interest, and any civil penalties, the SEC said.
The SEC is also investigating whether other securities-law violations were committed and whether there are other companies or people relating to the alleged misconduct.
Twins Tyler and Cameron Winklevoss are the founders of Gemini. The crypto exchange was sued late last year by investors alleging that the company sold interest-bearing accounts without registering them as securities, also through the Gemini Earn program.
The Winklevoss twins were early champions of cryptocurrencies, using the money and fame they won in legal wrangling with Facebook parent Meta Platforms Inc. META, +2.87% and Meta’s founder Mark Zuckerberg over their role in creating the social-media giant to launch Gemini.
According to the SEC complaint, the Gemini Earn agreement between Genesis, part of a subsidiary of Digital Currency Group, and Gemini started in December 2020.
Gemini customers, including U.S. retail investors, were to have an opportunity to loan their crypto assets to Genesis in exchange for Genesis’ promise to pay a high interest rate.
Gemini deducted agent fees that were as high as 4.29%, the SEC alleges.
“Genesis then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors,” the SEC said.
By November, however, Genesis announced it would not allow the Gemini Earn investors to withdraw their crypto assets because of a liquidity crunch following volatility in the crypto market after FTX’s bankruptcy filing, the SEC said.
At the time, Genesis held about $900 million in investor assets from 340,000 Gemini Earn investors, the SEC said. Gemini ended the Gemini Earn program earlier this month.
“As of today, the Gemini Earn retail investors have still not been able to withdraw their crypto assets,” the SEC said in a statement.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said in a statement.
The 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,” Gensler said.
The SEC’s complaint was filed in the U.S. District Court for the Southern District of New York.