Gemini and Genesis Charged by SEC With Selling Unregistered Securities, Will DCG be Next Failure - Barry Silbert Tweets

The US Securities and Exchange Commission (SEC) is charging crypto exchange Gemini and Genesis Global Capital over the sale of unregistered securities. The lawsuit filed by the SEC on Thursday focused on the Gemini Earn product.

SEC charges Gemini and Genesis with selling unregistered securities

The lawsuit by the SEC revolves around Gemini Earn. A yield-bearing product offered by the Gemini exchange. The product attracted US investors who could not access their funds after Genesis halted withdrawals after the FTX crisis.

Gemini generated yield from the Earn product by loaning customer deposits to Genesis, which loaned these assets again to other institutions. After Genesis halted withdrawals on its lending unit in November, it left around 340,000 Gemini Earn users in limbo. The lender owes around $900 million to these users.

According to the SEC, the Earn product, which attracted much interest across the crypto industry, was an unregistered security. The regulator noted that the failure of the two companies to register the program caused losses to investors.

In the press release, the SEC Chair, Gary Gensler, said that “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.”

Tyler Winklevoss has hit out at the SEC over these charges calling them a “manufactured parking ticket.” Winklevoss published a series of tweets on January 12 saying that the regulator was only looking to score political points.

He further said that the actions taken by the SEC were counterproductive and that Gemini had discussed the Earn program with the SEC for over 17 months. Instead, the commission chose to take enforcement action after Genesis halted withdrawals on November 16.

Barry Silbert pens a letter to shareholders

The SEC’s lawsuit comes when the co-founders of Gemini, the Winklevoss twins, seem to be on ill terms with the CEO of Digital Currency Group, Barry Silbert. DCG is the parent company of Genesis and Grayscale. The Winklevoss twins have accused Silbert of fraud in how he is managing Genesis.

On January 10, Silbert penned a letter to shareholders addressing the current state of the crypto company and the FUD around DCG. He said that the issues surrounding DCG and its subsidiaries were caused by the crypto bear market and the FTX fallout, as the company’s portfolio had felt the effects of this contagion.

He also addressed the exposure of DCG to FTX and other failed crypto firms. He said Genesis and Three Arrows Capital had a “trading and lending relationship.” He further said that DCG invested $250,000 in a series B funding round for FTX in July 2021. DCG also owes Genesis over $440 million and 4,550 BTC.

However, the letter did little to calm the crypto community, who asked why Silbert failed to address the accusations raised by Cameron Winklevoss. Winklevoss had said Silbert was “unfit” to run DCG just hours before Silbert penned his letter.

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