The SEC has charged Gemini and Genesis Global Capital with offering unregistered securities through the exchange's "Earn" program.

Gemini Co-Founder Terms SEC Charges as a “Manufactured Parking Ticket”

  • The SEC has charged Gemini and Genesis Global Capital with offering unregistered securities through the exchange’s “Earn” program.
  • The two firms entered into an agreement in December 2020 for the Gemini Earn program which was officially launched in February 2021.
  • SEC claims that offering of yields constitutes “an offer and sale of securities under applicable law and should have been registered” with the agency.
  • Tyler Winklevoss, the firm’s co-founder, called this move of SEC as “super lame” and a “manufactured parking ticket.”

The United States Securities and Exchange Commission (SEC) has charged crypto exchange Gemini, the 12th largest exchange by spot trading volume, with offering unregistered securities through Gemini’s “Earn” program, along with crypto lending firm Genesis Global Capital, a subsidiary of crypto conglomerate Digital Currency Group (DCG).

The securities regulator has been increasingly skeptical towards crypto firms and has recently been charging many firms for breaking the law while operating in the country. Things have gotten worse with the collapse of the former multi-billion dollar crypto exchange FTX under the leadership of Sam Bankman-Fried, also known as SBF, who claims that he is not responsible for his firm’s bankruptcy

Gemini entered into an agreement with Genesis in December 2020 to offer the former’s customers access to yield bearing accounts that allow them to earn interest on the crypto they had deposited on their accounts. This was named the Gemini Earn program and was launched in February 2021. The basis of this entire program was that customers would loan their funds to the exchange, which promised to return them with interest. However, the New York-based firm would have full control of these funds. 

The SEC noted in a statement that the yield would sometimes be as high as 4.29%, but in November 2022, Gemini froze withdrawals for the customers who had money in the Earn program, stating that “Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market.”

Interestingly, the regulator stated in its complaint that the offering of yields via Gemini Earn constitutes “an offer and sale of securities under applicable law and should have been registered” with the SEC.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors. 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,” said SEC Chair Gary Gensler.

Gemini Co-founder Responds

Tyler Winklevoss, the co-founder of the cryptocurrency exchange, claims that the Gemini Earn program was regulated by the New York State Department of Financial Services (NYDFS) and called the charges “super lame.” Moreover, he revealed that the SEC and his exchange have been in discussion regarding the offering for over 17 months and added that the latter “never raised the prospect of any enforcement action until AFTER Genesis paused withdrawals on November 16th.”

Winklevoss expressed his disappointment and stated that “despite these ongoing conversations, the SEC chose to announce their lawsuit to the press before notifying us. Super lame. It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of 340,000 Earn users and other creditors.”

“We look forward to defending ourselves against this manufactured parking ticket. And we will make sure this doesn’t distract us from the important recovery work we are doing. But seriously, what is the point or urgency here? The Earn program has been shut down for almost two months,” the Gemini co-founder added. 

Gemini has also felt the harsh effects of the current crypto winter and last year laid off a significant amount of its workforce. However, the exchange was also confirmed as a Virtual Asset Service Provider (VASP) in Ireland.

Parth Dubey Verified

A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.

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