Genesis Global Capital, LLC has agreed to a $21 million settlement with the Securities and Exchange Commission (SEC) over its involvement with the Gemini Earn program, ending a legal drama that has unfolded over the course of more than a year.
Genesis Global Capital’s agreement to a final judgment, announced in an SEC press release on March 19, includes a $21 million civil penalty and a permanent injunction. This settlement stems from allegations that Genesis and Gemini bypassed important investor protection disclosures by failing to register their retail crypto lending product before its public offering.
Per the terms of the settlement, the SEC “will not receive any portion of the penalty until after payment of all other allowed claims by the bankruptcy court, including claims by retail investors in the Gemini Earn program.” Genesis agreed to the terms of the settlement without admitting wrongdoing or denying the allegations.
SEC Chair Gary Gensler emphasized the importance of compliance with securities laws for the protection of investors and the integrity of markets, stating, “Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”
Unregistered Securities
The SEC filed charges against Genesis and Gemini in January 2023. The complaint alleged that the Gemini Earn program, which allowed customers to loan their crypto assets to Genesis in return for interest payments, was a security under US law and that the companies had failed to register it as such. The SEC further noted the program’s collapse in November 2022, which left approximately $900 million in crypto assets from 340,000 investors inaccessible. Genesis later filed for bankruptcy on January 19, 2023.
Read More: Court Denies Genesis, Gemini’s Motion to Dismiss SEC Suit
Tuesday’s development follows a decision from the court last week to deny Genesis and Gemini’s motion to dismiss the SEC suit, allowing the case to proceed based on the plausibility of the SEC’s allegations. This decision underscored the potential classification of the Gemini Earn product as a security under the Howey Test, a critical factor in the court’s consideration.
The settlement marks a significant development in the SEC’s ongoing efforts to regulate the crypto lending space, with a clear message that compliance with securities laws is not only essential for investor protection but also a legal requirement. The aftermath of this case may prompt other crypto lending platforms to reassess their compliance strategies to avoid similar regulatory actions.
