Bankrupt cryptocurrency lender Genesis, a subsidiary of cryptocurrency giant Digital Currency Group (DCG), pays a $21 million civil penalty to settle charges against the Securities and Exchange Commission (SEC) without admitting or denying any of the charges. agreed to pay.
The settlement resolves allegations that Genesis engaged in the offering and sale of unregistered securities through a cryptocurrency asset lending program known as Gemini Earn.
The SEC announced the settlement Tuesday morning, emphasizing its commitment to enforcing securities laws in the cryptocurrency market.
“We charged Genesis with failing to register its retail cryptocurrency lending products before offering them to the public, circumventing mandatory disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said in a press release. He said.
The settlement includes a permanent injunction against Genesis for violating Section 5 of the Securities Act. Notably, the SEC will not receive its portion of the fine until the company pays what it owes creditors and customers, including claims from retail investors in the Gemini Earn program.
Founded in 2013 by Barry Silbert, Genesis provides a variety of services, including over-the-counter (OTC) trading, lending, and cryptocurrency storage, primarily to institutional clients and high-net-worth individuals. But in January 2023, it filed for Chapter 11 bankruptcy protection with $150 million left in the bank and at least $3.4 billion owed to creditors and customers.
The SEC’s complaint alleged that the Gemini Earn program, which offers customers returns on cryptocurrency deposits after they receive loans with Genesis, constitutes an unregistered securities offering. However, in November 2022, Genesis froze withdrawals from Gemini Earn customers due to a lack of liquid assets due to volatility in the cryptocurrency asset market.
The Genesis bankruptcy filing was primarily triggered by the collapse of FTX, a major exchange founded by Sam Bankman-Fried, and the resulting slump in the digital asset market. Genesis’ financial difficulties have been compounded by its dispute with Gemini and problems faced by Genesis’ parent company, DCG.
“The collapse of the Gemini Earn program highlights the unknown risks to which investors can be exposed when market participants fail to comply with federal securities laws,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement, in a press release.
Gemini recently announced that Genesis agreed to return $1.1 billion in digital assets to users of the platform’s Earn program. If this development is approved by the judge overseeing the bankruptcy, all Earn users will receive 100% of their digital assets back in kind.
In a recent development, Genesis received court approval to sell approximately $1.6 billion worth of Grayscale cryptocurrency trust shares to repay creditors. The company is preparing a liquidation plan to cease operations and repay customers in cash or cryptocurrency. Genesis also reached a settlement with the U.S. Securities and Exchange Commission and the New York Attorney General to prioritize customer repayments.
Edited by Stacey Elliott.
