The US Securities & Exchange Commission (SEC) has sued crypto firms Gemini and Genesis, subsidiaries of the Digital Currency Group (DCG), over illegal sales of unregistered securities through their crypto lending programme, Gemini Earn.
In 2021, Gemini and Genesis partnered to launch Earn, through which customers loan crypto tokens to Genesis for interest rates of up to eight percent. This allowed the firms to raise billions of dollars in crypto.
In November 2022, the firms held $900 million in customer assets. However, the collapse of FTX prompted them to suspend withdrawals, leaving 340,000 investors unable to access their funds.
On Thursday, the SEC filed a complaint in Manhattan federal court, suing the firms for failing to register the Earn platform as a securities offering.
“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,” SEC chief Gary Gensler said.
There are ongoing investigations into other securities law violations and whether other entities and individuals were involved in the scheme.
Today we charged Genesis Global Capital, LLC and Gemini Trust Company, LLC for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.
— U.S. Securities and Exchange Commission (@SECGov) January 12, 2023
Gemini founders call SEC complaint counterproductive
Gemini founder Cameron Winklevoss called the SEC’s actions against his company “counterproductive”, saying his company was “working hard to recover” investors’ funds.
“This action does nothing to further our efforts and help Earn users get their assets back. Their behavior is totally counterproductive,” Winklevoss said on Twitter.
Earlier on Tuesday, Winklevoss published an open letter calling for the firing of DCG CEO Barry Silbert. He accused the CEO of defrauding creditors and mismanagement of withheld investors’ funds. DCG has since denied the allegations, calling the remarks false and defamatory.
Earn Update: An Open Letter to the Board of @DCGco pic.twitter.com/eakuFjDZR2
— Cameron Winklevoss (@cameron) January 10, 2023