(Reuters) – The U.S. Securities and Exchange Commission said on Thursday it has charged Genesis Global Capital LLC and Gemini Trust Company LLC with illegally selling securities to hundreds of thousands of investors through their crypto lending program.
Genesis, part of Digital Currency Group, entered into an agreement with Gemini in December 2020 to offer Gemini customers the chance to lend their crypto assets to Genesis in exchange for receiving interest, the SEC said. Beginning in February 2021, they raised billions of dollars worth of crypto assets from investors, the SEC said.
The companies violated securities laws by offering and selling crypto assets through their Gemini Earn product, the SEC said.
In a post on Twitter, Gemini founder and CEO Tyler Winklevoss called the complaint disappointing and said the company looks forward to defending itself.
“This action does nothing to further our efforts and help Earn users recover their assets. Their behavior is totally counterproductive,”; he said.
Genesis did not immediately respond to a request for comment.
In November 2022, Genesis told investors that they could not withdraw their crypto holdings because the volatility of the crypto markets led to a liquidity crisis. At the time, Genesis had approximately $900 million in assets from 340,000 Gemini Earn investors. The investors have not been able to withdraw their assets, the regulator said.
Investigations into other, related violations are ongoing, the agency said.
In February 2022, a subsidiary of rival crypto firm BlockFi Inc. agreed to pay $100 million to the SEC and 32 states to settle charges related to their offering of a similar fixed-income product.
Gemini and other Genesis creditors have been agitating for a resolution to avoid a situation similar to FTX’s rapid decline into bankruptcy. Genesis owes creditors more than $3 billion, according to a person familiar with the matter.
Gemini co-founder Cameron Winklevoss publicly called for DCG chief executive Barry Silbert to be ousted on Tuesday, accusing Silbert of defrauding creditors and engaging in “bad faith stall tactics.” The DCG has called Mr Winklevoss’ allegations false and defamatory.