Genesis Global Capital, LLC has agreed to a final judgment that includes a $21 million civil penalty and a permanent injunction, resolving charges brought by the U.S. Securities and Exchange Commission (SEC) accusing Genesis of conducting an unregistered offer and sale of securities via its crypto asset lending program. The SEC will be queued behind other claimants, including retail investors, in the bankruptcy court’s distribution of payments, ensuring that Genesis’s penalty is only paid after the fulfillment of all other allowed claims.
SEC Chair Gary Gensler emphasized the critical nature of this settlement, highlighting it as a continuation of the SEC’s efforts to enforce compliance within the crypto market. Gensler pointed out the fundamental requirement for crypto lending platforms and other intermediaries to adhere to established securities laws, underscoring that such adherence is essential for investor protection, market trust, and legal compliance.
The SEC’s legal action against Genesis and the Gemini Trust Company, LLC was initiated on January 12, 2023. The complaint detailed how, through the Gemini Earn program, Genesis promised to pay interest on crypto assets loaned to them by retail investors. However, the program faltered when Genesis, amid market volatility in November 2022, revealed its inability to fulfill withdrawal requests due to a lack of liquid assets. This announcement affected approximately 340,000 Gemini Earn investors, leaving them without access to the nearly $900 million in crypto assets held by Genesis.
Subsequent to these events, Genesis and two of its affiliates sought protection by filing for Chapter 11 bankruptcy in the Southern District of New York on January 19, 2023. This move has left investors in a precarious position, unable to withdraw or access their invested crypto assets.
In resolving the SEC’s allegations without admitting or denying the claims, Genesis has consented to a final judgment that enjoins it from future violations of Section 5 of the Securities Act of 1933. This case not only underscores the SEC’s commitment to enforcing securities laws within the burgeoning field of cryptocurrency but also serves as a cautionary tale for other entities operating within this space.
