SEC Says Crypto Firms Offered Unregistered Securities

by Ana Lopez

On Thursday, the Securities and Exchange Commission (SEC) charged Genesis Global Capital and Gemini Trust, run by Cameron and Tyler Winklevoss, with offering unregistered securities. According to a New York Times reportthe “Gemini Earn” program promised investors would benefit from high interest on deposits – but it was never registered with the agency.

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Genesis is part of the Digital Currency Group, while the Winklevosses run Gemini. In a statement quoted by the TimeSEC Chairman Gary Gensler said the companies ignored “investor protection disclosure requirements.” The allegations, Gensler continued, “make it clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws.”

According to the SEC, up to 340,000 investors lost nearly $900 million in crypto.

The SEC’s action indicates that the crypto winter that began in 2022 has led to a much greater focus on the cryptocurrency industry. Here’s more of the Time:

A crash in the prices of cryptocurrencies like Bitcoin last spring led to a domino effect, with crypto hedge funds like Three Arrows Capital and other crypto companies declared bankruptcy. In November, FTX, a major cryptocurrency exchange run by Sam Bankman-Fried, also collapsed after the crypto equivalent of a bank run.

The SEC complaint details how Gemini Earn investor money disappeared. Clients supposedly earned interest on money loaned to Genesis through Gemini. Gemini – which was sued by investors in late 2022 – is said to take a large brokerage fee from the income intended for Gemini Earn investors.

According to the complaint, Genesis also allegedly lent over half a billion dollars worth of crypto to Digital Currency Group. Then FTX collapsed in early November, prompting Genesis to freeze customer assets. As a result, Gemini Earn customers were unable to get their money back.

While the Winklevoss twins believed in an interview that there is “a path to getting a deal done that is a solution for Earn users”, Time says Gemini has filed an answer claiming it was just the middleman – that the transaction was really between the customers and Genesis.

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