Jan. 12 (UPI) — The Securities and Exchange Commission on Thursday charged the cryptocurrency firms Genesis and Gemini, which was founded by the Winklevoss twins, with allegedly selling unregistered securities.
The cryptocurrency exchange platform Gemini partnered with Genesis, a cryptocurrency lender, in February 2021 on a new product called Earn, which advertised yields of up to 8% if customers loaned their crypto assets to Genesis.
Gemini acted as the agent to facilitate transactions between investors and Genesis while deducing an agent fee as high as 4.29% from the returns Genesis paid back to the investors, the SEC said in a statement announcing the charges Thursday.
“Through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors,” according to the SEC.
Authorities added that Genesis announced in November it would not allow Gemini Earn investors to withdraw their crypto assets because the company did not have sufficient liquid assets to allow the withdrawals after the recent fallout of the cryptocurrency industry.
“At the time, Genesis held approximately $900 million in investor assets from 340,000 Gemini Earn investors,” according to the SEC.
The Gemini Earn program has since been terminated and investors have still not been able to withdraw their crypto assets, authorities said.
The SEC argued in charging documents that the Gemini Earn program “constitutes an offer and sale of securities under applicable law and should have been registered with the commission.”
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” said SEC Chair Gary Gensler.
“Today’s 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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”
The SEC is seeking permanent injunctive relief, disgorgement, and civil penalties against Genesis and Gemini in the U.S. District Court for the Southern District of New York.
Gemini was founded in 2015 by Cameron and Tyler Winklevoss, the twin brothers and former Olympians known for suing Facebook founder Mark Zuckerberg for allegedly stealing the idea for the social network from them and Harvard classmate Divya Narendra.
The charges come after the collapse of Sam Bankman-Fried’s FTX in November, which is undergoing bankruptcy proceedings.
The Justice Department charged Bankman-Fried with two counts of wire fraud conspiracy, two counts of wire fraud and one count of conspiracy to commit money laundering. Each charge carries a maximum 20-year prison sentence.
He was arrested in December at his resort apartment in Nassau, Bahamas, “without incident,” according to the Royal Bahamas Police Force. He later was extradited to the United States and has pleaded not guilty to his charges.