Since the beginning of the year, Gemini and Genesis—two of the leading crypto companies—have been locked in an intensifying dispute over an investment product that promises customers high yields for lending their crypto assets. .
On Thursday, the US Securities and Exchange Commission charged the two companies with unregistered offers and sales of securities to retail customers. in the filed complaint in the US District Court for the Southern District of New York.
“Today’s charges build on past actions to make clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws,” wrote SEC Chair Gary Gensler in a statement published on the agency’s website.
Gemini is a crypto exchange founded by Cameron and Tyler Winklevoss, known for their Bitcoin fortune and ending up on the wrong side of Facebook saga, as remembered in The Social Network.
In 2021, Gemini partnered with Genesis Trading—a crypto lending company part of Barry Silbert’s Digital Currency Group empire—to launch a new product called Gemini Earn, where customers can earn yields around 8% for storing cryptocurrencies on the platform. Genesis generates returns by lending money to institutional investors.
Following the collapse of FTX in November, Genesis suspended redemptions, exposure that it had about $175 million in funds locked up in the failed exchange. That, in turn, hurt Gemini, with Cameron Winklevoss writing an open letter to Silbert PUBLISHED on January 2 that Genesis owes $900 million to repay some 340,000 Gemini Earn customers.
Gemini officially shut down its Earn product on January 8. Two days later, another open letter, Cameron Winklevoss demanded that the DCG board remove Silbert as CEO. Gemini Earn customers are still unable to withdraw their crypto assets.
Thursday’s SEC charges come after a report on Friday from Bloomberg that Genesis is under investigation by the SEC and the US Department of Justice for internal financial dealings. It is unclear if the investigations are related.
In its statement, the SEC said that Gemini deducts an agent fee as high as 4.29% from the returns paid by Genesis to Gemini Earn investors, with Genesis exercising discretion on how to use the crypto assets.
The SEC said that the Gemini Earn product consisted of an offer of unregistered securities, which bypassed the required disclosure.
In the wake of the FTX collapse, the agency has faced criticism from the crypto industry and members of Congress for failing to regulate the volatile sector. The new charges, aimed at two of the biggest crypto companies, add to Gensler’s long-standing claims that he had just begun to venture into the industry he described as the “Wild West.”
He said SAYS in a December interview, “The runway is getting shorter.”
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