SEC Files Crypto Charges Against Gemini and Genesis

An extra dimension has been introduced to the dispute between Gemini’s founders, Tyler and Cameron Winklevoss, and Barry Silbert of the Digital Currency Group, which owns Genesis Trading, with the US Securities and Exchange Commission (SEC) filing charges against both firms for offering unregistered securities products to retail consumers.

The SEC charges involve the very product that Gemini and Genesis are in dispute about, the former lent the latter almost $1 billion to invest and generate yields for the Gemini Earn product, which was sold to investors.

In a public spat which inevitably attracts comparisons between that of Binance and FTX before the latter’s spectacular implosion, Cameron Winklevoss has accused Silbert of acting in “bad faith stall tactics” over his apparent reluctance to meet to resolve the dispute – Genesis parent company Digital Currency Group apparently owes Genesis over $1.6 billion, but is enmeshed in the fallout from the Three Arrows collapse last year.

In its charges, the SEC says the Gemini Earn programme, which was terminated by Gemini last week, “constitutes an offer and sale of securities…and should have been registered with the commission”.

It certainly seems as though Winklevoss accepts the involvement of retail investors, in his open letter to Silbert, which was published on Twitter, he states, “This is money that Genesis owes to Earn users and other creditors. You took this money – the money of schoolteachers – to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV [net asset value] trades that ballooned the fee-generating AUM [assets under management] of your Trust.”

In November, Genesis announced that it would not allow Gemini Earn investors to withdraw their crypto assets because the firm lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market. It adds that investors have still not been able to withdraw their crypto assets.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” says SEC chair Gary Gensler. “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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”

Gurbir Grewal, director of the SEC’s Division of Enforcement, adds, “The recent collapse of crypto asset lending programmes and the suspension of Genesis’ programme underscore the critical need for platforms offering securities to retail investors to comply with the federal securities laws. As we’ve seen time and again, the failure to do so denies investors the basic information they need to make informed investment decisions. Our investigations in this space are very much active and ongoing and we encourage anyone with information about this matter or other possible securities law violations to come forward, including under our Whistleblower Programme if applicable.”