Genesis Agrees to $21 Million Penalty in SEC Settlement

Genesis Global Capital, LLC has agreed to a final judgment ordering it to pay a $21 million civil penalty to the Securities and Exchange Commission (SEC). This settlement comes in response to charges levied against Genesis for engaging in the unregistered offer and sale of securities through its crypto asset lending program, the Gemini Earn program.

The SEC's announcement on the settlement underscores the gravity of Genesis' actions in bypassing essential disclosure requirements designed to safeguard investors. SEC Chair Gary Gensler emphasized the necessity for crypto lending platforms and intermediaries to adhere to established securities laws, reiterating that compliance is not optional but obligatory under the law.

The collapse of the Gemini Earn program, as highlighted by Gurbir S. Grewal, Director of the SEC's Division of Enforcement, underscores the inherent risks investors face when market participants fail to comply with federal securities laws. Grewal emphasized that no amount of advertising or hype can replace the crucial investor protection disclosures mandated by these laws.

The charges brought against Genesis and Gemini Trust Company, LLC, date back to January 12, 2023. The SEC's complaint alleged that the Gemini Earn program, presented as an investment opportunity, allowed customers, including retail investors in the United States, to loan their crypto assets to Genesis in exchange for promised interest. However, Genesis announced in November 2022 that it would not permit investors to withdraw their assets due to insufficient liquid assets, following market volatility. At the time, Genesis held approximately $900 million in crypto assets from 340,000 Gemini Earn investors.

Genesis and two affiliates filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York on January 19, 2023. Consequently, investors have been unable to access or withdraw the crypto assets they invested through the Gemini Earn program.

The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, charged Genesis and Gemini with violating Sections 5(a) and 5(c) of the Securities Act of 1933. In addition to the $21 million civil penalty, Genesis has consented to a final judgment permanently enjoining it from violating Section 5 of the Securities Act, without admitting or denying the allegations.

This settlement serves as a crucial reminder of the regulatory scrutiny faced by entities operating in the cryptocurrency space and reinforces the imperative for adherence to securities laws to ensure investor protection and market integrity.

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