Bankrupt crypto financier Genesis, a subsidiary of crypto conglomerate Digital Currency Group (DCG), has filed a 2100 filing to resolve charges with the Securities and Exchange Commission (SEC) without admitting or denying any charges. Agreed to pay a $10,000 civil penalty.
The settlement resolves allegations that Genesis engaged in the unregistered offering and sale of securities through a crypto asset lending program known as Gemini Earn.
The SEC announced the settlement Tuesday morning, underscoring its commitment to enforcing securities laws in the virtual currency market.
SEC Chairman Gary Gensler said in a press release: “We are accusing Genesys of circumventing mandatory disclosure requirements designed to protect investors and failing to register a retail cryptocurrency lending product before making it available to the public. I have filed a complaint.”
The settlement includes a permanent injunction against Genesis for violating Section 5 of the Securities Act. Notably, the SEC will not receive any portion of the fine until the company pays the money it owes creditors and customers, including claims by retail investors in the Gemini Earn program.
Founded in 2013 by Barry Silbert, Genesis provides a variety of 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, the company filed for Chapter 11 bankruptcy with $150 million remaining in the bank and owes creditors and customers at least $3.4 billion.
The SEC's complaint alleges that the Gemini Earn program, which offers customers the return of their crypto deposits after lending to Genesis, constitutes an offering of unregistered securities. However, Genesis froze withdrawals for Gemini Earn customers in November 2022 due to a lack of sufficient liquid assets following volatility in the crypto market.
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 woes were further complicated by the dispute with Gemini and problems faced by Genesis' parent company DCG.
“The collapse 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 Division of Enforcement. said in a press release.
Gemini recently announced that Genesis has agreed to return $1.1 billion in digital assets to users of the platform's Earn program. If this development is approved by the judge overseeing the bankruptcy, all Earn users will receive 100% of their digital assets back in kind.
In a recent development, Genesis received court approval to sell approximately $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 virtual currency. Genesis also reached settlements with the U.S. Securities and Exchange Commission and the New York State Attorney General to prioritize repayments to customers.
Edited by Stacey Elliott.
