Since the beginning of the year, Gemini and Genesis—two top crypto companies—have been locked in an increasingly heated dispute over investment products that promise customers high returns for lending crypto assets.
On Thursday, the U.S. Securities and Exchange Commission charged the two companies with unregistered offers and sales of securities to retail customers in a complaint filed in the U.S. District Court for the Southern District of New York.
“Today’s charges build on previous actions to clarify to the market and the investing public that crypto credit platforms and other intermediaries must comply with time-tested securities laws,” SEC Chairman Gary Gensler wrote in a statement published on the agency’s website.
Gemini is a crypto exchange founded by Cameron and Tyler Winklevoss, known for their Bitcoin fortunes and ending up on the wrong side of the Facebook saga, as a memorial in Social Networks.
In 2021, Gemini partnered with Genesis Trading—a crypto lending company that is part of Barry Silbert’s Digital Currency Group empire—to launch a new product called Gemini Earn, where customers can earn close to 8% for saving cryptocurrencies on the platform . Genesis generates returns by lending money to institutional investors.
After FTX collapsed in November, Genesis postponed the redemption, saying it had $175 million in funds locked up in the failed exchange. That, in turn, hurt Gemini, with Cameron Winklevoss writing in an open letter to Silbert published on January 2 that Genesis owes $900 million to repay around 340,000 Gemini customers.
Gemini officially shut down its products on January 8, two days later, on the other open letter, Cameron Winklevoss is demanding the DCG board remove Silbert as CEO. Gemini Earn customers are still unable to withdraw their crypto assets.
The SEC’s charges come after a recent report from Bloomberg that Genesis is being investigated by the SEC and the US Department of Justice for its internal financial affairs. It is unclear whether the investigations are related.
In its statement, the SEC said Gemini deducts an agent fee of up to 4.29% of the returns Genesis pays to Gemini Earn investors, with Genesis exercising discretion in how to use its crypto assets.
The SEC stated that the Gemini Earn product was an unregistered securities offering, bypassing the required disclosures.
After the announcement, Tyler Winklevoss took to Twitter, writing that the Earn program has been regulated by the New York Department of Financial Services, one of the top US crypto regulators besides the SEC, and that Gemini has been in discussions with the SEC for more than 17 months.
According to Winklevoss, the SEC did not raise the prospect of enforcement action until after Genesis had paused its withdrawal in November. He described it as “super lame.”
Following the collapse of FTX, the SEC has faced criticism from the crypto industry and members of Congress for failing to regulate the volatile sector. The new accusations, aimed at two major crypto companies, will further Gensler’s long-standing claims that he is just beginning to explore an industry he describes as the “Wild West.”
As he said in a December interview, “And the runway is getting shorter.”
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