Genesis Global Capital has recently settled a legal dispute with the United States Securities and Exchange Commission (SEC) by agreeing to pay a substantial civil penalty of $21 million. This settlement stems from allegations related to the Gemini Earn lending program, which Genesis and Gemini were accused of launching without proper registration as a securities offering targeted at retail investors.
Genesis to settle SEC case with $21 million
The SEC’s chair, Gary Gensler, emphasized the significance of crypto lending platforms and other intermediaries adhering to securities laws in a statement made on March 19. Gensler stressed that such compliance is crucial not just for investor protection but also for maintaining trust and integrity in financial markets, asserting that compliance with securities laws is mandatory rather than discretionary.
Under 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 brings to a close a lawsuit initiated by the SEC against Gemini and Genesis in January 2023, accusing them of engaging in the sale of 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 boasted around 340,000 customers and managed assets totaling $900 million, as disclosed in the SEC’s announcement. The $21 million penalty follows closely on the heels of Gemini’s separate agreement to pay a $37 million penalty to address multiple compliance deficiencies.
Compliance efforts and potential asset return
Superintendent Adrienne Harris of the New York State Department of Financial Services (NYDFS) explained in a statement on February 28 that these deficiencies had posed risks to the company’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 appreciation in value that may have occurred. Gemini expressed optimism regarding this potential outcome, noting that if the agreement is approved, they anticipate returning over $1.8 billion in value based on current market prices.
This represents a substantial increase of $700 million 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, marks significant steps toward resolving legal and regulatory issues surrounding the Gemini Earn lending program. These developments also underscore the importance of regulatory compliance and investor protection within the rapidly evolving cryptocurrency industry.
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