Crypto firms Gemini and Genesis have been charged for the sale of unregistered securities by the US regulator SEC.
According to sources, the complaint in Manhattan federal court was filed as “the unregistered offer and sale of securities to retail investors through the Gemini crypto lending program.”
The United States regulator stated that Genesis and Gemini agreed to a deal in December 2020 to give the latter’s customers the option of lending their cryptocurrency to Genesis.
As part of the agreement, Genesis would agree to pay interest on the loans being issued.
Then in February 2021, both firms introduced the Gemini Earn program to retail investors, who then “tendered their crypto to Genesis,” according to the report.
SEC claimed that by these transactions, Gemini would act as the facilitator and earn a 4.29% agent fee, and Genesis would then “exercise discretion in how to use investors’ crypto assets to generate revenue and pay interest to the latter’s Earn investors.”
But in November of 2022, Genesis went bankrupt and said it could no longer allow Earn investors to withdraw.
SEC further accused Genesis of possessing roughly $900 million in assets from investors and that customers have not been able to withdraw their crypto, despite the Gemini Earn program shutting down earlier this month
According to the complaint filed by SEC, both firms collaborated and participated in acts that constituted the allegations of offering and selling unregistered securities.
The agency claimed both parties are responsible even though Genesis was the issuer.
Gemini and Genesis’ Relationship Went Sour
The two leading crypto 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.
After FTX’s bankruptcy in November sparked a run for the exits throughout the crypto community, Genesis banned withdrawals. The firm has still not permitted Earn users to withdraw their money.
Representatives from Gemini and Genesis parent Digital Currency Group declined to comment.
Gemini, which was established in 2015 by Bitcoin proponents Cameron and Tyler Winklevoss, has a sizable exchange operation that, despite being in trouble, might withstand enforcement action.
Tyler Winklevoss said in a tweet that it is “working diligently to recover assets” referring to the SEC’s lawsuit as “counterproductive”, and would defend itself against “this manufactured parking ticket.”