Gemini, crypto-exchange accused by SEC

The crypto-exchange of the Winklevoss twins, Gemini, has been accused by the SEC for offering “unregistered securities.” Gary Gensler, the chairman of the SEC, stepped up the scrutiny against what he dubbed the “wild west” of cryptocurrencies.

Gemini and the SEC: the US authority’s charges against the crypto-exchange

The nagging “unregistered security” by the US Securities and Exchange Commission (SEC) against crypto-exchanges has also involved that of the Winklevoss twins, Gemini.

As early as last January, the SEC reportedly blamed the disastrous “Gemini Earn” program for being an unregistered security offering. Here’s how the SEC quoted it:

“Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors. Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”

In essence, emerging evidence suggests that programs such as staking have become a means for cryptocurrency companies to inflate the value of their assets using consumer funds.

All this general scrutiny of crypto-exchanges by the SEC came after the collapse of FTX in November, which froze billions of dollars of customer deposits.

Recently, in a roundup of tweets, Tyler Winklevoss, the co-founder of Gemini, wanted to emphasize the crypto firm’s position of Gemini Trust Company LLC. 

2/ Gemini Trust Company, LLC, is a New York trust company and has been a fiduciary and qualified custodian under the New York Banking Law since 2015. This will continue to be the case under any new SEC rule that comes into effect.

— Tyler Winklevoss (@tyler) February 17, 2023

Gemini and SEC: clearing up confusion over crypto regulation

Winklevoss’s tweet refers more to crypto custody than to the Earn program. However, his statements also say that investor protection is paramount but that the public regulatory process on crypto and securities to be registered is unclear. 

Indeed, what the SEC is doing is precisely targeting all crypto offerings of cryptocurrency exchanges by deeming them non-compliant with the law.

The confusion arises precisely over the fact that the SEC would like to define a cryptocurrency as a security or financial instrument traded for profit. To do so, it would classify the asset according to the four points of the Howey Test. This would mean that the crypto-asset would become like gold or an ETF.

However, all this is not yet a reality. Not only that, their evolution with programs such as staking or Initial Coin Offerings creates more confusion on the subject. In fact, if crypto assets were securities, then these programs would have to be classified as a security offering and therefore registered, just like an IPO of a stock.

Crypto exchanges retaliate on Twitter

The past few weeks, all of the crypto-exchanges have been abuzz on Twitter commenting on the SEC’s latest statements.

Kraken had to shut down its staking service after the SEC charged it a $30 million fine. Jesse Powell, CEO of Kraken, ruefully commented on SEC Chairman Gary Gensler’s video saying that those who offer staking programs to be compliant should also provide complete, fair, and truthful information.

Although no charges have been filed for the time being, Coinbase’s Chief Legal Officer, Paul Grewal, also commented that they would be happy to defend the staking service in court if the SEC charges them. 

Not only staking, even the issuance of stablecoins seems to be under scrutiny by the authorities. In fact, Paxos had to block the issuance of new Binance USD (BUSD) upon the order of the NYDFS, which reported concerns about stablecoin compliance.

In contrast, Binance, without much comment, announced instead that it had minted 50 million units of the TrueUSD stablecoin, surprising the community since there were no reported plans to do so.