Genesis Global Capital has reached a resolution with the United States Securities and Exchange Commission (SEC) by agreeing to pay a significant civil penalty of $21 million. This settlement arises from allegations concerning the Gemini Earn lending program, which Genesis and Gemini were accused of launching without proper registration as a securities offering for retail investors.
To settle the case with the SEC, Genesis will pay a $21 million penalty, but the SEC will only receive a portion of this amount after other bankruptcy-related payments, including claims from retail investors, have been satisfied. The lawsuit, initiated by the SEC in January 2023, accused Gemini and Genesis of selling unregistered securities through the Gemini Earn program.
Gary Gensler, the chair of the SEC, emphasized the importance of crypto lending platforms and intermediaries adhering to securities laws. Gensler stated that compliance is essential not only for investor protection but also for maintaining trust and integrity in financial markets. He stressed that compliance with securities laws is mandatory and not discretionary.
In November 2022, Genesis faced operational challenges and suspended user withdrawals from its platform. At that time, Gemini Earn had approximately 340,000 customers and managed assets worth $900 million. The $21 million penalty follows closely behind Gemini’s separate agreement to pay a $37 million penalty to address various compliance deficiencies.
The New York State Department of Financial Services (NYDFS) stated that these deficiencies posed risks to Gemini’s overall safety and stability. As part of its settlement with the NYDFS, Gemini is expected to return a minimum of $1.1 billion to customers who participated in the Gemini Earn program.
This return will be facilitated through the ongoing bankruptcy proceedings involving Genesis. If approved by the bankruptcy court, this arrangement would enable Gemini Earn users to recover 100% of their cryptocurrency assets, including any increase in value. Gemini is optimistic about this potential outcome and anticipates returning over $1.8 billion based on current market prices, representing a $700 million increase compared to the value of assets when Genesis halted withdrawals in November 2022.
The settlement between Genesis Global Capital and the SEC, along with Gemini’s separate agreement with the NYDFS, are significant steps toward resolving legal and regulatory issues surrounding the Gemini Earn lending program. These developments highlight the importance of regulatory compliance and investor protection in the rapidly evolving cryptocurrency industry.