The Securities and Exchange Commission (SEC) has accused Genesis, a cryptocurrency lender, and Gemini, a crypto exchange, of failing to register a product as a securities offering. The product, called Earn, was touted as providing yields of up to 8%. Earn was discontinued very recently in light of the allegations.
SEC says Earn met the agency’s definition of a security
According to the SEC, the Earn program included an investment contract and a note, hence the agency’s designation of Earn as a security. The SEC says that Genesis loaned crypto assets to Gemini users then returned some of the profits to Gemini. Gemini then took an agent fee, at times more than 4%, and sent the remaining profit to customers.
Both Genesis and Gemini are facing possible civil penalties, disgorgement and permanent injunctive relief.
The two firms are also engaged in a dispute over $900 million in assets that Gemini says it entrusted to Genesis in connection with the Earn program.
Crypto enforcement actions on the rise in wake of FTX collapse
The SEC is under considerable scrutiny by lawmakers for the agency’s failure to enforce regulations that might prevent debacles such as the recent collapse of Sam Bankman-Fried’s FTX. Both the SEC and the Commodity Futures Trading Commission (CFTC) have lately accelerated and broadened efforts to regulate the crypto industry. The charges against Gemini and Genesis are yet another example of those efforts.
If you have questions or concerns about legal exposure related to digital assets or other matters of securities law, we encourage you to contact the cryptocurrency defense attorneys at Ford O’Brien Landy LLP. With offices in New York City and Austin, Texas, we advise and represent clients nationwide.
Source: NBC News, “SEC charges crypto firms Genesis and Gemini with selling unregistered securities,” Jan. 12, 2023