Understanding Genesis Global Capital’s $21 Million Settlement with SEC
Genesis Global Capital has agreed to pay a fine of $21 million as part of a settlement reached with the Securities and Exchange Commission (SEC) concerning charges related to an unregistered offering and sale of securities through Gemini Earn. This settlement includes a permanent injunction imposed by the SEC. The payment to the SEC will only be made after satisfying all claims allowed by the bankruptcy court, including those from retail investors in Gemini Earn.
Priority to SEC and Bankruptcy Credits: Sanctions for Genesis
– Genesis agrees to pay a civil penalty of $21 million as part of the settlement
– A permanent injunction has been imposed by the SEC
– Payment to the SEC will only happen after satisfying all claims allowed by the bankruptcy court
– This includes claims from retail investors in Gemini Earn
SEC Chairman Gary Gensler emphasized that Genesis failed to register its retail crypto lending product before offering it to the public, thereby bypassing essential disclosure requirements meant to protect investors. The agreement with Genesis reinforces the importance of compliance with securities laws for cryptocurrency lending platforms, promoting investor protection and market confidence.
Director of the SEC Division of Enforcement, Gurbir S. Grewal, pointed out that the failure of the Gemini Earn program exposed investors to risks when market participants do not comply with federal securities laws. This enforcement action underscores that adequate information required by federal securities laws cannot be replaced by advertising for investor protection.
The Previous SEC Accusations and the Failure of Genesis
– Charges were filed against Genesis and Gemini Trust Company on January 12, 2023
– Focus was on the Gemini Earn program allowing retail investors to lend cryptographic assets
– In exchange for interest earned on lent assets
– Investors faced liquidity issues in November 2022
Genesis filed for voluntary bankruptcy on January 19, 2023, at the bankruptcy court in the Southern District of New York following these events.
US Court Finds Plausible Cause Against Gemini and Genesis
– A US judge deems a case regarding alleged securities violation by Gemini and Genesis plausible
– Judge Edgardo Ramos rejects dismissal requests by both companies in a complaint filed by the SEC
– Complaint concerns an Earn program hosted until end of 2022
In a recent ruling, Judge Ramos found sufficient grounds supporting allegations that Gemini and Genesis violated U.S. securities laws. The SEC’s use of existing tests like Howey Test and Reves Test helped classify the Earn program according to securities laws. The judge concluded that defendants offered and sold unregistered securities through Gemini Earn, rejecting their dismissal requests.
In another case from January 2023, litigants claimed that both companies marketed the Earn program as an investment opportunity meeting securities requirements set by regulatory agencies like the Attorney General’s office in New York. Letitia James sued Gemini, Genesis, and DCG for $1 billion in an alleged cryptocurrency fraud scheme.
Hot Take: Conclusion on Genesis Global Capital’s Settlement
Genesis Global Capital agrees to pay a fine of $21 million, representing the settlement reached with the SEC regarding charges filed.
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