SEC Charges Crypto Exchange Gemini and Lending Firm Genesis With Unregistered Securities

• The U.S. Securities and Exchange Commission (SEC) charged crypto exchange Gemini and crypto lending firm Genesis Global Capital with offering and selling unregistered securities.
• The SEC claims that the Earn program constitutes the offering and sales of securities that should have been registered.
• Both companies generated assets worth hundreds of dollars from hundreds of thousands of investors.

On January 12th 2021, the U.S. Securities and Exchange Commission (SEC) took action against two companies in the cryptocurrency space, charging crypto exchange Gemini and crypto lending firm Genesis Global Capital with offering and selling unregistered securities. The action was taken after the two companies reached an agreement in December 2020 to provide customers of the exchange company with a yield-bearing crypto product, which was launched in February 2021.

The product, called Gemini Earn, promised returns of up to 8% for customers who loaned their crypto assets to Genesis. Under the agreement, the crypto lending firm was to repay the customers with interest. The SEC noted that after Genesis sent a portion of the profits of the loan back to Gemini, the latter distributed it to investors who participated in the Earn program.

The Commission concluded that the Earn program constitutes an offering and sales of securities that should have been registered with the Commission. Moreover, the SEC revealed that both companies had generated assets worth hundreds of dollars from hundreds of thousands of investors.

In the wake of this action, the SEC is seeking civil penalties, disgorgement, and injunctive relief against Genesis and Gemini. The Commission also noted that the companies have agreed to a cease-and-desist order, and to pay disgorgement of all gains derived from the sale of unregistered securities, along with prejudgment interest, and a civil penalty.

The SEC’s action serves as a reminder to crypto companies that they must comply with the same federal securities laws as traditional companies. Moreover, the Commission’s action makes it clear that companies should not assume that their activities are exempt from registration requirements, and that they must take steps to ensure that they are in compliance with all applicable laws and regulations.