SEC Targets Genesis and Gemini For Selling Unregistered Securities

By Kevin • January 13, 2023 3:02 pm • Comments

It looks like the SEC is once again following its playbook of regulation through litigation which has been plaguing the crypto industry within the US for awhile.

The SEC has just accused the firms Gemini and Genesis for selling unregistered securities through their crypto platforms.

Both of these companies are known for being crypto exchanges as well as crypto lenders and have not been the first companies to have been targeted by the SEC for these reasons.

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What is particularly under scrutiny is the crypto lending platform and Gensler has stated that these violate the existing securities laws.

The agency claims that investors of this program have suffered a lot of losses and speculators believe that this will give some short term uncertainty in the current crypto markets.

CNBC reports:

The two firms have been engaged in a high-profile battle over $900 million in customer assets that Gemini entrusted to Genesis as part of the Earn program, which was shuttered this week. Genesis suspended withdrawals after the failure of FTX in November caused a rush for the exits across the crypto universe, and the firm has yet to allow Earn customers to pull their funds.

“The U.S. retail investors who participated in the Gemini Earn program have suffered significant harm,” the SEC complaint read. More than 340,000 investors have been affected by the freeze.

In the first three months of 2022, Gemini made around $2.7 million in agent fees off Earn, the SEC complaint alleges. Genesis would use Gemini users’ assets for institutional lending or as “collateral for Genesis’ own borrowing,” the agency said.

Over the same period, Genesis paid out $166.2 million in interest to clients, including Gemini, on $169.8 million of interest income, the SEC said.

Gemini is one of the major crypto firms that have been severely impacted by the collapse of FTX and has also been looking to recover funds.

Investors are concerned about a possible Gemini bankruptcy given the current market conditions and its financial ties to the FTX collapse.

Additionally, the recent actions of the SEC has had many start questioning whether or not the SEC’s actions are actually effective at protecting investors.

After all, Gensler has been criticized a lot for failing to prevent the FTX collapse and has been seemingly focused on pursuing legitimate firms that are following regulations.

As a result, many are hesitant on investing and are pushing lawmakers in Congress to fast track progress on creating clear guidelines for the industry so that it is no longer up to the SEC’s interpretation.

CNBC concludes:

Gensler’s SEC and the Commodity Futures Trading Commission, chaired by Rostin Benham, are the two regulators that oversee crypto activity in the U.S. Both agencies filed complaints against Bankman-Fried, but the SEC has, of late, ramped up the pace and the scope of enforcement actions.

The SEC brought a similar action against now bankrupt crypto lender BlockFi and settled last year. Earlier this month, Coinbase
settled with New York state regulators over historically inadequate know-your-customer protocols.

Since Bankman-Fried was indicted on federal fraud charges in December, the SEC has filed five crypto-related enforcement actions.

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