Genesis Global Capital has reached a resolution in its legal dispute with the United States Securities and Exchange Commission (SEC) by agreeing to pay a significant civil penalty of $21 million. The dispute revolves around allegations related to the Gemini Earn lending program, which Genesis and Gemini were accused of launching without the proper registration as a securities offering aimed at retail investors.
The chair of the SEC, Gary Gensler, highlighted the importance of crypto lending platforms and other intermediaries adhering to securities laws in a statement on March 19. Gensler emphasized that compliance is not just essential for protecting investors, but also for maintaining trust and integrity in financial markets. He made it clear that adherence to securities laws is mandatory, not optional.
As per the terms of the settlement, the SEC will only receive a portion of the $21 million penalty after other bankruptcy-related payments, including claims from retail investors, have been satisfied. This settlement effectively puts an end to the lawsuit initiated by the SEC against Gemini and Genesis in January 2023, accusing them of selling unregistered securities through the Gemini Earn program.
Genesis faced operational challenges in November 2022 when it suspended user withdrawals from its platform. At that time, Gemini Earn had approximately 340,000 customers and managed assets worth $900 million, as disclosed by the SEC. The $21 million penalty closely follows Gemini’s separate agreement to pay a $37 million penalty to address various compliance deficiencies.
Superintendent Adrienne Harris of the New York State Department of Financial Services (NYDFS) explained in a statement on February 28 that these deficiencies posed risks to the overall safety and stability of Gemini. 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 appreciation in value. Gemini expressed optimism about this potential outcome, stating that if the agreement is approved, they anticipate returning over $1.8 billion based on current market prices.
This represents a substantial increase of $700 million compared to the value of assets when Genesis suspended withdrawals in November 2022. The settlement between Genesis Global Capital and the SEC, along with Gemini’s separate agreement with the NYDFS, signify significant progress in 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 changing cryptocurrency industry.
