Bankrupt crypto lender Genesis, a subsidiary of crypto conglomerate Digital Currency Group (DCG), has agreed to pay a $21 million civil penalty to settle charges with the Securities and Exchange Commission (SEC) without admitting or denying any allegations.
The settlement resolves allegations that Genesis engaged in the unregistered offer and sale of securities through a crypto asset lending program known as Gemini Earn.
The SEC announced the settlement on Tuesday morning, emphasizing its commitment to enforcing securities laws in the cryptocurrency market.
"We charged Genesis with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors," SEC Chair Gary Gensler said in a press release.
SEC Hits Genesis, Gemini With Securities Law Violations for Gemini Earn Program
The beleaguered Gemini Earn program is now the linchpin in a new set of charges filed by the Securities and Exchange Commission against both Genesis and Gemini. In announcing the charges, the SEC says the firms "raised billions of dollars' worth of crypto assets from hundreds of thousands of investors" in Gemini Earn, describing it as an unregistered offering that qualifies as the sale of securities to retail investors. "We allege that Genesis and Gemini offered unregistered securities to the pu...
The settlement includes a permanent injunction against Genesis from violating Section 5 of the Securities Act. Notably, the SEC will not receive any portion of the penalty until after the firm has paid out money it owes creditors and customers, including claims by retail investors in the Gemini Earn program.
Genesis, founded in 2013 by Barry Silbert, offers various services, including over-the-counter (OTC) trading, lending, and custody of cryptocurrencies, primarily targeting 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 owed at least $3.4 billion to creditors and customers.
Genesis Files for Bankruptcy, Has $150 Million In the Bank
Digital currency brokerage Genesis announced that it filed for Chapter 11 bankruptcy late Thursday. "An in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Genesis' interim CEO Derar Islim in a prepared statement. The company, which is a subsidiary of Digital Currency Group (DCG), says that it has more than $150 million in cash on hand, which it describes as "ample liquidity" to fund o...
The SEC complaint alleged that the Gemini Earn program, which offered customers a return on their crypto deposits after they’d been loaned to Genesis, constituted an unregistered securities offering. But, in November 2022, Genesis froze withdrawals for Gemini Earn customers due to a lack of sufficient liquid assets following volatility in the crypto 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 downturn in the digital asset market. Genesis' financial struggles were further complicated by disputes with Gemini and the problems faced by Genesis’ parent company DCG.
"The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities laws," Gurbir S. Grewal, Director of the SEC's Division of Enforcement, said in the press release.
Gemini to Return $1.1 Billion to Earn Customers, Pay $37 Million Fine In New York Settlement
New York-based cryptocurrency exchange Gemini announced late Wednesday that the parties involved in the bankruptcy case of crypto lending company Genesis have agreed to return $1.1 billion in digital assets to users of the platform’s Earn program. “We have finally reached a settlement in principle with Genesis and other creditors in the Genesis Bankruptcy that will, if approved by the Bankruptcy Court, result in all Earn users receiving 100% of their digital assets back in kind,” the company wro...
Gemini recently announced that Genesis agreed to return $1.1 billion in digital assets to users of the platform’s Earn program. This development, if approved by the judge overseeing the bankruptcy, will result in all Earn users receiving 100% of their digital assets back in kind.
In a recent development, Genesis received court approval to sell about $1.6 billion in Grayscale cryptocurrency trust shares to repay creditors. The company is working on a liquidation plan to shut down operations and repay customers in cash or cryptocurrency. Genesis has also reached settlements with the U.S. Securities & Exchange Commission and the New York Attorney General to prioritize customer repayments.
Edited by Stacy Elliott.
