Genesis Global Capital Agrees to Settle SEC Dispute for $21 Million
On March 19, 2024, the United States Securities and Exchange Commission (SEC) announced that Genesis Global Capital had agreed to pay a substantial civil penalty of $21 million to settle a legal dispute. The allegations stemmed from the Gemini Earn lending program, which the SEC claimed was launched without proper registration as a securities offering targeted at retail investors.
SEC Chair Stresses Importance of Securities Law Compliance
In a statement regarding the settlement, SEC Chair Gary Gensler underlined the significance of crypto lending platforms and other intermediaries adhering to securities laws. He emphasized that such compliance was not only essential for investor protection but also for maintaining trust and integrity in financial markets. Gensler asserted that securities laws were mandatory rather than discretionary.
Settlement Details
Under the terms of the settlement, the SEC will only receive a portion of the $21 million penalty after other bankruptcy-related payments, including claims from retail investors, have been satisfied. This settlement effectively closes a lawsuit initiated by the SEC against Gemini and Genesis in January 2023 for selling unregistered securities through the Gemini Earn program.
Genesis Operational Challenges and Regulatory Deficiencies
In November 2022, Genesis faced operational challenges when it suspended user withdrawals from its platform. At that time, the Gemini Earn program had approximately 340,000 customers and managed assets worth around $900 million. The $21 million penalty follows closely on the heels of Gemini’s separate agreement to pay a $37 million penalty for multiple compliance deficiencies.
Returning Assets and Potential Value Recovery
Superintendent Adrienne Harris of the New York State Department of Financial Services (NYDFS) stated in a February 28 statement that these deficiencies had posed risks to the company’s overall safety and stability. As part of Gemini’s settlement with the NYDFS, they are expected to return a minimum of $1.1 billion to customers who participated in the Gemini Earn program.
This return will be facilitated through the ongoing bankruptcy proceedings involving Genesis. If approved by the bankruptcy court, this arrangement would enable Gemini Earn users to recover 100% of their cryptocurrency assets, including any appreciation in value that may have occurred. Gemini expressed optimism regarding this potential outcome, anticipating the return of over $1.8 billion in value based on current market prices.
This represents a substantial increase of $700 million compared to the value of assets when Genesis halted withdrawals in November 2022. The settlement between Genesis Global Capital and the SEC, along with Gemini’s separate agreement with the NYDFS, marks significant steps toward resolving legal and regulatory issues surrounding the Gemini Earn lending program. These developments also underscore the importance of regulatory compliance and investor protection within the rapidly evolving cryptocurrency industry.
