Bankrupt Crypto Lender Genesis To Settle SEC Charges

Bankrupt Crypto Lender Genesis To Settle SEC Charges

A subsidiary of Digital Currency Group, Genesis, has agreed with the US Securities and Exchange Commission (SEC).

The bankrupt crypto lender will pay a civil penalty of $21 million to the regulator for settling the charges it has filed against it, but without denying or admitting any allegations.

The settlement

The allegations made against the crypto lender were about it engaging in the unregistered offer and sale of securities via Gemini Earn, the popular crypto asset lending program.

The settlement was announced on Tuesday morning by the SEC and it reiterated its commitment to enforcing securities law in the digital currency market.

Gary Gensler, the chairman of the SEC, said in a press release that they had charged Genesis due to its failure to register its retail crypto lending product before it was offered to the public.

The SEC boss claimed that doing so was a violation of essential disclosure requirements that are put in place to protect investors.

A permanent injunction against the crypto lender is included in the settlement due to the violation of Section 5 of the Securities Act.

It should be noted that the penalty will only be paid after Genesis has paid the money it owes customers and creditors, including retail investors who participated in the Gemini Earn program.

The background

Barry Silbert founded Genesis back in 2013, which offered numerous services, including over-the-counter (OTC) trading, custody, and lending of cryptocurrencies.

These services primarily targeted institutional investors and high-net-worth individuals. However, last year in January, the company filed for Chapter 11 bankruptcy protection.

At the time, the company had a bank balance of about $150 million and it owed almost $3.4 billion to its customers and creditors.

The complaint of the SEC alleged that the Gemini Earn program was an unregistered securities offering. It offered a return to customers on their crypto deposits that were loaned to Genesis.

The details

Genesis had frozen withdrawals for its Gemini Earn customers back in November 2022, as it did not have sufficient liquid assets after the crypto asset market experienced intense volatility.

The bankruptcy filing of the company was primarily triggered by the downfall of the FTX crypto exchange, which had been founded by Sam Bankman-Fried.

This had resulted in a downturn in the broader crypto market and had resulted in financial problems for numerous companies, including Genesis.

Moreover, the crypto lender’s financial struggles were further complicated due to its dispute with Gemini and the problems of its parent company, DCG.

The Director of the Division of Enforcement of the SEC, Gurbir S. Grewal, said that the collapse of the Gemini Earn program highlights the unknown risks for investors due to non-compliance with securities laws.

Recently, an announcement from Gemini disclosed that Genesis would return digital assets of $1.1 billion to the users of the Earn program.

If the development receives the approval of the judge overseeing the bankruptcy case, then Earn users would be able to get back 100% of their digital assets.