Today, the SEC filed charges against LLC, Genesis Global, and Gemini Trust, LLC for making an unauthorized offering and selling securities to small investors via the Gemini Earn crypto asset lending scheme. Gemini and Genesis successfully raised several billion dollars in cryptocurrency assets from tens of thousands of users through this unauthorized offering. Investigations into potential breaches of securities legislation and any additional businesses or individuals involved in the suspected misconduct are underway. This news was uncovered today by the chairman of SEC, Gary Gansler, in a Twitter thread.
SEC Files Charges Against Virtual Currencies Group’s Genesis and Gemini Trust Company for Misuse of Investors’ Crypto Holdings
The complaint alleges that in Dec 2020, Genesis, a division of Virtual Currencies Group, started a deal with Gemini to allow its clients, particularly individual US investors, to lend their cryptocurrency holdings to Genesis in return for interest payments. In February 2021, Gemini & Genesis launched the Gemini Earn program for their retail investors. Through this initiative, Gemini Earn participants could tender their cryptocurrency holdings to Genesis, with Gemini serving as the agent for this tender. The profits that Genesis provided to investors on Gemini Earn were reduced by agent fees paid to Gemini, which reached 4.29 percent at its peak. According to the allegations in the petition, Genesis used the cryptocurrency assets of Gemini investors at its own discretion to make a profit and distribute that profit to the investors.
Gemini Earn Program Halted: SEC Lawsuit Claims Misuse of $900 Million in Investor Holdings
According to the lawsuit, Genesis declared in Nov 2022 that the firm would no longer allow participants in its Gemini Earn program to withdraw their cryptocurrency due to a shortage of liquid assets caused by market volatility. At the time, about $900 million in total investor holdings from 340,000 Gemini users were held by Genesis. Earlier last month, Gemini discontinued its Gemini Earn program. Investors who made purchases on Gemini Earn through traditional retail channels are still unable to withdraw their cryptocurrency as of today.