Crypto brokerage firm Genesis has settled with the U.S. Securities and Exchange Commission [SEC], bringing an end to a year-long legal battle concerning its Earn product. The company has agreed to pay a $21 million civil penalty to resolve the litigation and benefit the debtors’ estates. It plans to seek approval for its debt repayment plan in bankruptcy court in the coming weeks.
The legal saga began in January of the previous year, when both Genesis and Gemini were charged by the SEC for the sale of unregistered securities. The complaint, filed in Manhattan federal court, focused on the unregistered offer and sale of securities to retail investors through Gemini’s crypto lending program. The SEC alleged that in December 2020, Genesis and Gemini entered into an agreement allowing Gemini’s customers to lend their cryptocurrency to the latter, who shared the responsibility to pay interest on the loans.
The SEC contended that Gemini acted as a facilitator, earning a 4.29% agent fee, while Genesis exercised discretion in utilizing investors’ crypto assets to generate revenue and pay interest to Earn investors. However, Genesis filed for bankruptcy in November 2022, preventing Earn investors from withdrawing their funds, leading to accusations from the SEC that approximately $900 million in assets were inaccessible to investors.
Genesis Restructuring Plans
The SEC’s complaint alleges that both entities collaborated in acts constituting the offering and selling of unregistered securities. Genesis became embroiled in legal actions, including those of its former partner Gemini, its partner firm Digital Currency Group, and CEO Barry Silbert. The two former business partner firms were involved in a bitter public spat over $900 million in customer assets where both sides accused each other of perpetuating fraudulent activity, misleading accounting, and misguided public statements.
Genesis, facing a “mega” bankruptcy case with over 100,000 creditors and total obligations ranging from $1.2 billion to $11 billion, is considering potential sale and equitization transactions under its Chapter 11 plan. This strategy aims to enable the lending business to emerge under new ownership. The bankruptcy documents outline the company’s plans for restructuring and addressing its extensive financial obligations.