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Crypto Firms Genesis and Gemini Charged by SEC with Selling Unregistered Securities

The Securities and Exchange Commission (SEC) has charged crypto firms Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.

Gemini and Genesis logo
Gemini and Genesis logo

The SEC has alleged that crypto firms Gemini and Genesis offered and sold unregistered securities.

Gemini and Genesis Partners for Earn Program

Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which touted yields of up to 8% for customers. According to the SEC, Genesis loaned Gemini users' crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users. Genesis should have registered that product as a securities offering, SEC officials said in a complaint filed in Manhattan federal court.

SEC's Actions and Future of Crypto Firms

The SEC is seeking permanent injunctive relief, disgorgement, and civil penalties against both Genesis and Gemini, and noted that "investigations into other securities law violations and other entities and persons relating to the alleged misconduct are ongoing." Gemini's Earn program, supported by Genesis' lending activities, met the SEC's definition by including both an investment contract and a note, SEC officials said.

Gemini, which was founded in 2015 by bitcoin advocates Cameron and Tyler Winklevoss, has an extensive exchange business that, while beleaguered, could weather an enforcement action. Genesis' future is more uncertain because the business is heavily focused on lending out customer crypto and has already engaged restructuring advisers. The crypto lender is part of Digital Currency Group, the conglomerate controlled by Barry Silbert.