Genesis agrees to pay $21 million in fine, settles with SEC

Source: SEC official website; Compiled by: Deng Tong, Golden Finance

The U.S. Securities and Exchange Commission announced today that Genesis Global Capital, LLC agreed with the final judgment and ordered it to payPay a $21 million civil penalty and impose a permanent injunction to settle charges that it engaged in unregistered offerings and sales of securities through crypto-assets. Under the terms of the settlement, the SEC will not receive any portion of the penalty until all other claims allowed by the bankruptcy court, including those of retail investors in the Gemini Earn program, are paid.

U.S. Securities and Exchange Commission Chairman Gary Gensler said: “We allege that Genesis failed to register its retail crypto lending products before making them available to the public, thus bypassing the Basic disclosure requirements that protect investors." "Today's settlement builds on previous actions and is designed to make clear to markets and the investing public thatCryptocurrency lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in the market. It is not optional. It's the law."

"The failure of the Gemini Earn program highlights the unknown risks investors face when market participants fail to comply with federal securities laws," said Gurbir S. Grewal, Director of the SEC's Enforcement Division . "As this enforcement action demonstrates, no amount of hype or advertising can substitute for the investor protection disclosures required by federal securities laws."

The U.S. Securities and Exchange Commission (SEC) on January 12, 2023 Charges were filed against Genesis and Gemini Trust Company, LLC (“Gemini”). According to the SEC complaint, the Gemini Earn program was a purported investment opportunity to which Gemini customers, including retail investors in the U.S., had loans lent to them. Genesis promises to pay the interest that Genesis earns on the crypto assets it lends. In November 2022, Genesis announced that it would not allow Gemini Earn investors to withdraw their crypto assets because Genesis lacked sufficient liquid assets to satisfy withdrawal requests following volatility in the crypto asset market, according to the complaint. At the time, Genesis held approximately $900 million in crypto assets from 340,000 Gemini Earn investors.

Genesis and two affiliates voluntarily filed Chapter 11 on January 19, 2023, in the U.S. Bankruptcy Court for the Southern District of New York. Investors cannot access or withdraw their crypto-assets invested in Genesis through Gemini Earn.

The U.S. Securities and Exchange Commission filed a lawsuit in the U.S. District Court for the Southern District of New York, charging that Genesis and Gemini violated the 1933 Sections 5(a) and 5(c) of the Securities Act. In addition to the civil penalties described above, Genesis, without admitting or denying the allegations in the SEC complaint, agreed to a final judgment permanently enjoining Genesis from violating Section 5 of the Securities Act.

The SEC’s investigation was conducted by Jonathan Austin and Ashley Sprague and overseen by Deborah Tarasevich and Stacy Bogert. The bankruptcy court proceedings are being conducted by Therese Scheuer and William Uptegrove and overseen by Alisaire Bambach. The ongoing District Court proceedings against Gemini are being led by Edward Reilly and Laura Meehan and overseen by James Connor and Olivia Choe.