Gemini & Genesis Accused of Offering Unregistered Securities

The US Securities and Exchange Commission (SEC) today announced settled charges against Genesis Global Capital, LLC and Gemini Trust Company, LLC for selling unregistered securities linked to the Gemini crypto lending program.

Crypto exchange Gemini announced the launch of Gemini Earn in February 2021 in partnership with lending platform Genesis. The lending product allows customers to lend out their cryptocurrencies in exchange for up to 8% APY.

More Enforcement is Coming

The SEC said that Genesis used customers’ deposits to make loans and pay interest to customers. Part of the interest, estimated at over 4%, was sent to Gemini as an agent fee before returning to customers.

The agency accused Genesis and Gemini of offering the product without registration.

“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,” according to SEC chair Gary Gensler.

More FTX Fallout

Genesis and Gemini had a close connection in the past. However, following the FTX’s bankruptcy filing that triggered a financial crisis across multiple entities, Genesis has suspended withdrawals and froze $900 million funds of Gemini Earn users.

The troubled lender said that at the moment the trading platform went insolvent, $175 million in funds were stranded on the FTX exchange, causing it to request an emergency injection of $140 million from the parent company in order to stay in business.

Genesis Trading’s closure necessitated the Gemini Earn product exchange issuing a notification to halt withdrawals due to the storage of the aforementioned assets. Despite this, Gemini insists that they have complete faith in Genesis to carry out their obligations.

Gemini, however, stated on January 8 that the exchange had ended its lending deal with Genesis because the company violated the deadline for repaying consumers’ money. Additionally, Gemini closed its Earn program.

Gemini Earn demands Genesis to provide a report on the status of opening withdrawals every Tuesday and Friday until a solution is found, according to the updates provided by Gemini.

Massive Debts

Financial Times recently revealed Genesis debt stands at $3 billion. The massive debt forced the parent company DCG to sell most of the assets in the portfolio to raise enough capital to maintain operations.

Genesis’ debt includes $900 million for Gemini users, 280 million euros for Bitavo and customers of the Donut savings deposit service. The source said that there is still another group of Genesis creditors and is represented by the legal team from Prokauer Rose.

The crypto market is still coping with the aftermath of FTX demise. Apart from Genesis Trading, BlockFi is another to be in severe damage.

In November 2022, crypto lender BlockFi filed for Chapter 11 bankruptcy of the US Bankruptcy Law after FTX declared bankruptcy, aiming to restructure the company instead of selling assets.

The fallout has also triggered a wave of withdrawals from leading exchanges since the end of last year. Binance faced massive outflows from the platform. The world’s top cryptocurrency exchange is struggling to retain investors.

Cash Panic

In recent weeks, investors have been making a mad dash to withdraw their funds from the cryptocurrency exchange Binance due to the collapse of the competing market FTX.

In spite of Zhao’s assurance and reassurance that the situation has calmed, the cash outflow from this exchange continues to flow strongly.

Many companies failed this year, making it a terrible year for the crypto sector. Many retail investors have lost their whole life savings as a result of investing in cryptocurrencies. After a year of tremendous volatility and fraud, the cryptocurrency market is presently in a credibility crisis.

Many are beginning to wonder if there is a solution to rebuild, and more regulations are expected to be implemented in the future to protect consumers’ rights.