SEC charges two crypto firms for failing to disclose risks to investors

Suspension

For nearly two years now, Americans have been putting their money on a crypto platform called Gemini every day, earning high interest rates for their money at a time when it is very difficult to get hold of it.

But in November, all 340,000 users of the software — led by Silicon Valley twins Cameron and Tyler Winklevoss — find themselves unable to withdraw their funds as the cryptocurrency market begins to crash and the company goes through a liquidity crisis.

The Securities and Exchange Commission is now seeking to do something about it. On Thursday, the regulator instructed Gemini and another company it does business with, Genesis, not to register the software they’re running. as a guarantee. It is an attempt to hold companies accountable and could result in damages to repaying investors.

The Securities and Exchange Commission (SEC) is targeting the Gemini Earn, a program that promised consumers high-interest returns in exchange for holding their money in these crypto accounts. The same charge was made against Genesis.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chairman Gary Gensler said in a statement announcing the charges. He said registration “is not optional. It’s the law.” The agency did not specify the amount of damages it is seeking.

The SEC move is part of a government effort to hold crypto companies accountable for massive customer losses, which have been piling up since cryptocurrency exchange FTX imploded in November, sending ripples through the industry. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission recently brought both of them out complaints Against Sam Bankman-Fried, co-founder of FTX with the same goal in mind.

Under Earn, Gemini gives high rates to customers for borrowing their money. They did this in partnership with Genesis, which itself borrows money from Gemini at high rates. In recent weeks, Gemini and Genesis executives have sparred over who failed to live up to their responsibility in returning money to consumers.

As a result, about $900 million on Gemini Earn has been frozen with no indication of when customers will be able to access it.

Not every expert is convinced the SEC has a strong case.

It wasn’t clear that Gemini’s model would stand out as one of the many legal tests the government uses for securities, said Carol Goforth, a professor at the University of Arkansas School of Law and an expert on securities regulation.

“Just to say that every cryptocurrency is a security is deeply troubling,” she said. “It really depends on how you market the product, whether it’s a Gemini Earn or something else. They don’t all match.”

Gemini’s founders, the Winklevosses, are known as instigators in Silicon Valley. The twin brothers were Olympic rowers from Harvard University who sued Mark Zuckerberg, alleging that he and his partners stole the idea for Facebook from a company they founded. Having styled themselves as early adopters of cryptocurrency, they have reshaped themselves into some of the most successful entrepreneurs in the industry as Gemini has become one of the most popular cryptocurrency lending platforms.

The main reason behind this popularity was Earn, which since its launch nearly two years ago has been promising returns of up to 8%.

Genesis is part of the Digital Currency Group, or DCG, a conglomerate run by finance tycoon Barry Silbert whose holdings include asset manager Grayscale Investments and news platform CoinDesk.

Neither Gemini’s Cameron Winklevoss nor a Genesis representative responded to a request for comment.

The SEC has sought to use this power before. In early 2022, for example, the government securities agency and agencies Charged and reached a $100 million settlement With BlockFi crypto lender.

SEC officials told reporters Thursday that the move against Gemini and Genesis was part of a larger plan to go after crypto companies that did not register as securities. They said they did not distinguish between Gemini and Genesis in pursuing work.

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