Bankrupt crypto lender Genesis Global Capital LLC is paying US$21 million to resolve allegations that its lending program violated securities regulations.
The U.S. Securities and Exchange Commission (SEC) announced that Genesis agreed to settle the regulator’s charges, which alleged that Genesis carried out an unregistered securities offering through its Gemini Earn crypto-lending program.
Without admitting or denying the regulator’s allegations, the firm agreed to a permanent injunction and to pay a US$21 million civil penalty. However, the penalty won’t be enforced until all claims against the company in bankruptcy court have been paid, including claims from retail investors in the lending program.
In January 2023, the SEC charged Genesis and Gemini Trust Company LLC in connection with the program that promised to pay investors interest on cryptoassets loaned to the firm. The regulator charged that the company prevented investors from withdrawing their funds, starting in November 2022, after heightened volatility in the crypto market left the firm without enough liquid assets to meet redemption claims.
The SEC said 340,000 investors had approximately US$900 million in cryptoassets in the program when the company halted redemptions.
“The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities laws,” said Gurbir Grewal, director of the SEC’s enforcement division, in a release.
“As this enforcement action makes clear, no amount of hype and advertising can substitute for the investor-protection disclosures required by the federal securities laws,” he added.
In the wake of the SEC’s charges, Genesis and two affiliates filed for bankruptcy protection. That procedure remains before the courts.
“We charged Genesis with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors,” said SEC chair Gary Gensler in a release. “Today’s settlement builds on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws.”