Genesis Settles With SEC for $21 Million Over Unregistered Crypto Lending Program

Genesis Global Capital, a prominent digital currency prime broker, has reached a settlement agreement with the Securities and Exchange Commission (SEC) to resolve charges concerning the unregistered offering and sale of securities through its Gemini Earn program. The settlement, finalized on March 18, 2024, imposes a $21 million civil penalty on Genesis and a permanent injunction barring them from further violations.

The SEC's investigation focused on Gemini Earn, a program co-launched by Genesis and cryptocurrency exchange Gemini Trust in 2021. Gemini Earn allowed investors to loan their holdings of certain digital assets to Genesis in return for interest payments. The SEC contended that this program constituted the offering and sale of unregistered securities, specifically notes, and that Genesis failed to register the program with the commission or comply with the mandated exemptions.

According to the SEC's filing, Genesis acted as the principal in these transactions, borrowing the digital assets from investors and using them for its own purposes, potentially including proprietary trading or loaning them to other borrowers. The SEC argued that the interest payments offered by Gemini Earn were akin to returns on an investment contract, satisfying the Howey Test, a legal framework used to determine whether a transaction qualifies as an investment contract and thus a security under federal securities laws.

By failing to register the program, the SEC claims, Genesis deprived investors of crucial information they are entitled to by law, including the company's financial condition, its management team's background, and the risks associated with the investment. The settlement imposes a civil penalty on Genesis to compensate for these alleged transgressions.

The SEC's enforcement action against Genesis reflects the agency's increasing focus on the burgeoning cryptocurrency market and its intention to hold companies accountable for adhering to securities regulations. The settlement serves as a cautionary tale for other firms operating in the crypto space, highlighting the potential consequences of non-compliance with SEC regulations.

While Genesis has neither admitted nor denied the SEC's allegations, the settlement signifies its willingness to resolve the matter and move forward. The company stated it would continue to collaborate with regulators to ensure its offerings comply with applicable laws and regulations.