Since the beginning of the year, Gemini and Genesistwo of cryptos top companieshave been locked in an increasingly loud dispute over an investment product that promised customers high yields for lending their crypto assets.
On Thursday, the U.S. Securities and Exchange Commission charged both companies with the unregistered offer and sale of securities to retail customers in a complaint filed in the U.S. District Court for the Southern District of New York.
Todays 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, SEC Chair Gary Gensler wrote in a statement published on the agencys website.
Gemini is a crypto exchange founded by Cameron and Tyler Winklevoss, known for their Bitcoin fortune and ending up on the wrong side of the Facebook saga, as memorialized in The Social Network.
In 2021, Gemini partnered with Genesis Tradinga crypto lending firm thats part of Barry Silberts Digital Currency Group empireto launch a new product called Gemini Earn, where customers could earn yields approaching 8% for storing cryptocurrencies on the platform. Genesis generated the returns by loaning the money to institutional investors.
After Novembers collapse of FTX, Genesis suspended redemptions, disclosing that it had about $175 million in funds locked up on the failed exchange. That, in turn, hurt Gemini, with Cameron Winklevoss writing in an open letter to Silbert published on Jan. 2 that Genesis owed $900 million to repay around 340,000 Gemini Earn customers.
Gemini officially shut down its Earn product on Jan. 8. Two days later, in another open letter, Cameron Winklevoss demanded that DCGs board remove Silbert as CEO. Gemini Earn customers have still not been able to withdraw their crypto assets.
Thursdays SEC charges come after a report last Friday from Bloomberg that Genesis was under investigation by both the SEC and the U.S. Department of Justice for internal financial dealings. It is unclear if the investigations are related.
In its statement, the SEC said Gemini deducted an agent fee as high as 4.29% from the returns Genesis paid to Gemini Earn investors, with Genesis exercising discretion on how to use the crypto assets.
The SEC alleges that the Gemini Earn product constituted the offering of unregistered securities, bypassing required disclosures.
In the wake of FTXs collapse, the agency has faced criticism from both the crypto industry and members of Congress for failing to regulate the volatile sector. The new charges, aimed at two of cryptos major companies, will further Genslers long-stated claim that he is just getting started with taming an industry he describes as the Wild West.
As he said in a December interview, The runway is getting shorter.
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