S.E.C. Says Crypto Companies Offered Unregistered Securities

On Thursday, the Securities and Exchange Commission (S.E.C.) charged Genesis Global Capital and Gemini Trust, run by Cameron and Tyler Winklevoss, with offering unregistered securities. According to a New York Times report, the “Gemini Earn” program promised investors would profit from high interest on deposits — but it was never registered with the agency.

Genesis is part of the Digital Currency Group, while the Winklevosses run Gemini. In a statement quoted by the Times, S.E.C. chair Gary Gensler said the companies ignored “disclosure requirements designed to protect investors.” The charges, Gensler continued, “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.”

According to the S.E.C., up to 340,000 investors lost nearly $900 million worth of crypto.

The S.E.C.’s action signals that the crypto winter that began in 2022 has prompted much greater scrutiny of the cryptocurrency industry. Here’s more from the Times:

A crash in the prices of cryptocurrencies like Bitcoin last spring led to a domino effect, with crypto hedge funds such as Three Arrows Capital and other crypto companies declaring bankruptcy. In November, FTX, a major cryptocurrency exchange run by the entrepreneur Sam Bankman-Fried, also collapsed after the crypto equivalent of a bank run.

The S.E.C. complaint detailed how Gemini Earn investor money disappeared. Customers were supposedly earning interest on money loaned through Gemini to Genesis. Gemini — which was sued by investors at the end of 2022 — would take a steep agent fee out of the earnings intended for Gemini Earn investors.

According to the complaint, Genesis also reportedly loaned more than half-billion dollars worth of crypto to Digital Currency Group. Then F.T.X. collapsed in early November, prompting Genesis to freeze customer assets. As a result, Gemini Earn customers couldn’t get their money back.

While the Winklevoss twins expressed belief in an interview that there is “a path to getting a deal done that’s a resolution for Earn users,” the Times says Gemini has filed a response claiming it was just the middleman — that the transaction was really between the customers and Genesis.