Now the Securities and Exchange Commission is seeking to do something about it. On Thursday, the regulator charged Gemini and another company it does business with, Genesis, with not registering as securities. It’s an attempt to hold the companies accountable and could generate damages to repay investors.
The SEC is taking aim at Gemini Earn, a program that promised consumers high-interest returns for parking their money in these crypto accounts. It brought the same charge against a Genesis.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC chair Gary Gensler said in a statement announcing the charges. Registering, he said, is “not optional. It’s the law.” The agency did not specify the amount of damages it’s seeking.
The SEC’s move is part of a government effort to hold crypto companies to account for massive customer losses, which have been mushrooming since the cryptocurrency exchange FTX imploded in November, sending ripples through the industry. The SEC and Commodity Futures Trading Commission have each recently brought complaints against FTX co-founder Sam Bankman Fried with the same goal in mind.
Gemini gives high rates to customers in exchange for borrowing their money. They can do that because Genesis pays high rates to Gemini for borrowing their money, the freewheeling crypto world’s version of a bank. Gemini says it can’t give consumers’ money back because Genesis hasn’t returned the money back to Gemini. Genesis denies the claim.
As a result, about $900 million is frozen on Gemini Earn with no indication of when customers will be able to access it.
The co-founders of Gemini, Cameron and Tyler Winklevoss, are known as provocateurs in Silicon Valley. The twin brothers were Olympic rowers from Harvard who sued Mark Zuckerberg, alleging that he and his partners stole the idea of Facebook from a company they founded. Fashioning themselves as early crypto adopters, they had remade themselves into some of the most successful entrepreneurs in the industry as Gemini became one of the more popular crypto lending platforms.
A big reason for that popularity was Earn, which since it launched nearly two years ago promised high returns.
Genesis is part of Digital Currency Group, or DCG, a conglomerate run by finance mogul Barry Silbert and whose holdings include the asset manager Grayscale Investments and the news platform CoinDesk.
Neither Gemini’s Cameron Winklevoss nor a representative for Genesis replied to a request for comment.
The SEC has sought to use this power before. In early 2022, the agency charged and reached a $100 million settlement with crypto lender BlockFi.
SEC officials told reporters Thursday that the move against Gemini and Genesis was part of a larger plan to pursue crypto companies that have not registered as securities. They said they are making no distinction between Gemini and Genesis in pursuing the action.
