Amid Bankruptcy, Genesis Reaches $21 Million Settlement With the SEC

Genesis Global Holdco, the bankrupt cryptocurrency trading firm, in a court filing dated January 31, 2024, has announced its proposed settlement with the US Securities and Exchange Commission nearly thirteen months after the commission pressed charges against Genesis and Gemini for selling unregistered securities through Gemini Earn. The settlement agreement, filed in the US Bankruptcy Court for the Southern District of New York on January 31, 2024, should end the one-year-old lawsuit against Genesis Global for participating in the Gemini Earn program.

Genesis is now proposing a scheduled court hearing for February 14, 2024, to enter the settlement motion and obtain relevant approvals from the presiding judge. The company is also reportedly seeking approval for a bankruptcy plan that may see it repay creditors from the Gemini Earn collapse.

Recall that the SEC accused Genesis Global Capital and Gemini Trust Company of selling unregistered securities to retail investors through the Gemini Earn program on January 12, 2023. Since the initial lawsuit announcement, both companies have been in constant legal tussles with the US regulator, with this settlement proposal looking like a way out for Genesis Global.

It remains unclear if Gemini is holding separate settlement talks with the SEC.

What Went Wrong With Gemini Earn?

Genesis struck a deal with Gemini in 2020 to create Gemini Earn, a crypto lending service for users of the Gemini crypto exchange. The idea of Gemini Earn was simple: users could send their cryptocurrency assets to Genesis for interest after a given period. Gemini would deduct a certain percentage when the investment paid dividends, occasionally up to 4.29%, and let investors have the rest.

Everything seemed completely fine until November 2022, when Genesis indicated the unavailability of liquid funds to meet withdrawal demands. Note that this announcement coincides with the FTX collapse of 2022, a pointer that Gemini Earn’s failure wasn’t unrelated to the collapse.

Genesis continued to hold customer funds hostage until January 2023, when Gemini eventually terminated Gemini Earn with no plans to refund users who have invested in the program. According to the SEC (estimated), Genesis held over $900 million from 340,000 participants in the Gemini Earn program (at the time).

The failure of Gemini Earn attracted the attention of the US Securities and Exchange Commission, which, after a brief investigation, accused the two companies involved in the scheme of selling unregistered securities. According to the SEC, the description of Gemini Earn fits that of a security, and selling it without registration is consequently illegal.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said in the announcement of the charges against Genesis and Gemini. The commission then filed a complaint against Genesis and Gemini in the US District Court for the Southern District of New York, kickstarting the arduous legal battle.

Genesis Global Capital would then file for bankruptcy in the aftermath of the Gemini Earn collapse amid the SEC lawsuit.

Inside the $21 Million Settlement and the Bigger Bankruptcy Plan

Nearly 13 months after the SEC first pressed charges against Genesis and Gemini, the former is trying to end its legal troubles by proposing a settlement that would see it give up $21 million in exchange for the SEC dropping its cases against the firm.

“The proposed settlement will, among other benefits to the Debtors’ estates, resolve the Civil Action Claim filed by the SEC in these Chapter 11 Cases and eliminate the risks, expenses, and uncertainty associated with protracted litigation against the SEC,” Genesis Global wrote in the settlement motion.

In the same court filing, Genesis Global proposed February 14, 2024, as the hearing date for the settlement motion while proposing February 7, 2024, as the deadline for any potential objection by the SEC. The SEC has not commented on the Genesis motion.

In related news, Genesis reportedly seeks to repay customers who participated in the Gemini Earn program through cash or crypto. The company’s settlement with the SEC appears to be part of the plan, with Gemini also seeking approval for its bankruptcy reorganization plan on February 14, 2024.