Genesis Settles for $21M in SEC Case Amid Bankruptcy Claims

Genesis Global Capital, LLC has agreed to pay a $21 million civil penalty to settle charges from the U.S. Securities and Exchange Commission (SEC) that it conducted an unregistered offer and sale of securities through its crypto asset lending program, known as the Gemini Earn program. According to the SEC's complaint, Genesis, along with Gemini Trust Company, LLC, violated Sections 5(a) and 5(c) of the Securities Act of 1933 by offering a retail crypto lending product without the necessary registration and disclosure requirements intended to protect investors.

The SEC has emphasized the importance of crypto lending platforms and intermediaries adhering to established securities laws. This settlement arrives after a judge denied motions by Genesis and Gemini to halt the SEC's case against them, underlining the legal expectation for such entities to comply with regulatory standards. Furthermore, the SEC will not collect the penalty until after all other allowed claims, including those by retail investors, are settled by the bankruptcy court.

Genesis, which filed for bankruptcy in January 2023, and two affiliates were implicated in the failure of the Gemini Earn program, which left users unable to withdraw their assets due to liquidity issues at Genesis. The SEC's enforcement action is part of broader regulatory scrutiny of the cryptocurrency sector, including a separate $37 million settlement with the New York State Department of Financial Services (NYDFS) that aims to ensure Gemini Earn customers recover their assets through the Genesis bankruptcy proceedings. If the bankruptcy court approves, Earn users are expected to receive full restitution of their cryptocurrency assets plus any accrued interest.