The SEC attacks the crypto lender Genesis

Crypto lender Genesis is in serious trouble with the SEC, the government agency could drive the long-troubled company into bankruptcy.

After its various liquidity problems with creditors, Genesis is facing the Securities Exchange Commission (SEC), and the charge is no small one: selling financial securities without following proper procedure.

There are now several elements that suggest a potential end for Genesis: between the company’s huge debts and now, the complaint by the Securities Exchange Commission (SEC).

Genesis could permanently exit the crypto universe

There is no hiding it, 2022 has been a bad year for the cryptocurrency world; few have emerged unscathed, but there are those who more than others have seen all the work done in previous years lost.

Unfortunately, crypto lender Genesis is part of that list of those who in 2023, will have to struggle more than others to stay alive in the industry.

The collapse of the Terra/Luna ecosystem this summer and the collapse of the FTX crypto exchange have really affected the Genesis company greatly, leading them into immense debt with their clients.

Genesis owes more than $3 billion to its customers, including the $900 million it owes to Gemini from the Winklevoss twins, who have been vocal more than once.

The Financial Times reported that many of Genesis’ creditors, have turned to the same legal representation from Proskauer Rose’s firm.

After what happened to FTX, Genesis had announced a temporary suspension of interest accruals and the issuance of new loans. But the situation stretched on far too long, debts grew as they did, and a domino effect was once again created between the companies. Gemini, the exchange led by the Winklevoss brothers came to terms with Genesis’s debt default and will soon have to take legal action, to release its cash.

The Winklevoss brothers have never made a secret of who they are pointing the finger at, and they reiterated this in a letter sent directly to Digital Currency Group (DCG) and its CEO Barry Silbert. In fact, Cameron Winklevoss wrote an open letter directly to the Board of Directors of Digital Currency Group (DCG). The letter contains debt claims and several allegations about the solvency and transparency of DCG and Genesis:

“He did this in an attempt to fool the lenders into believing that DCG had managed to absorb the huge losses Genesis had suffered after the bankruptcy of Three Arrows Capital Ltd. (3AC) and had thus convinced them to lend to Genesis. By lying, they hoped to buy themselves time to pull themselves out of the hole they themselves had created.”

This time Digital Currency Group and Genesis, find themselves not only taking action against the creditors, but also answering directly to the SEC, the US government agency responsible for monitoring and supervising the markets and their proper conduct.

Such an investigation could really bring to its knees the lending company operating in the crypto world.

The charge is very serious, not coincidentally it is the same charge that Ripple (XRP) has been fighting with for years now.

The charge by the Security Exchange Commission (SEC)

As we have already reported, the latest news about the DCG Group crypto lender comes from the US Security Exchange Commission (SEC) itself.

Genesis appears to have been accused, along with partner Gemini, of selling unregistered securities, an offense that is heavily punished by regulators.

The liquidity problems will certainly not help Genesis get over even this boulder; the company will most likely face a possible Chapter 11.

While it may seem unusual, the chairman of the Security and Exchange Commission (SEC), via a video posted on Twitter gave an opportunity to explain what precise charges are being brought against Genesis and the Winklevoss brothers’ Gemini exchange. All explained in an almost fairy-tale-like manner, but one that makes clear the situation concerning Genesis:

“Seat belts are mandatory equipment for every passenger car. This is true despite the many innovations in automobile technology, whether they have four-wheel drive or two, whether they are electric or use gasoline…drivers deserve to be protected. Similarly, our financial securities laws protect investors. There is no reason to treat crypto markets differently from the rest of the capital markets just because they use different technology. Compliance with our laws protects the investing public. 

Unfortunately, some platforms that offer crypto loans do not comply with these laws. Consider this hypothetically: Bob offers an App that offers 7% returns and Alice and millions of other investors invest their assets through Bob’s App. Does the documentation help Alice understand what Bob does with his [Alice’s, Ed] assets, how he funds the returns that have been promised, e.g., is he running a hedge fund? In a nutshell, what kind of risks is he taking?”

The SEC chairman later goes on to explain why the crypto lending firm, Genesis, was charged:

“It doesn’t matter what kind of assets are contributed, whether gold, stocks, chinchilla…it’s what Bob does with those assets that triggers the protections that are afforded by our laws. This is what we have realized as the SEC in a recent shrewdness with BlockFi. There are costs in complying with the laws, just as there are costs in adding the aforementioned seatbelts by car manufacturers. 

Platforms offering crypto loans must follow our laws. This makes the markets safer and improves confidence in them. Pushing these platforms to comply with these laws will benefit investors and the crypto market. As with seat belts in cars, we need to make sure that investor protection is a standard in crypto markets.”

In conclusion, it can be inferred that the situation is not easily resolved. Genesis is in a very big trouble.

CEO Derar Islim, stated that he has discussed with his team a possible bankruptcy.

This is probably the only way to move effectively toward resolving the problems. Thus Chapter 11 seems to be coming next for Genesis.

Sad to think that bankruptcy is one of the only paths to salvation.

2023 has begun and as can be observed, only the strongest and most transparent survive. The aftermath of 2022 still remains firm and many times worse. Companies that dominated the industry until a few years ago now find themselves succumbing to the damage left over from last year.