SEC accuses 2 crypto companies of not disclosing risks to investors

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For nearly two years, everyday Americans have been putting money on the Gemini crypto platform, earning high interest on their money at a time when it’s extremely hard to come by.

But in November, all 340,000 users of the program — run by Silicon Valley twins Cameron and Tyler Winklevoss — found themselves unable to withdraw their money as the crypto market began to fall and the company went through a liquidity crisis.

Now the Securities and Exchange Commission wants to do something about it. On Thursday, the regulator accused Gemini and another company it does business with, Genesis, of failing to register the program they ran as a security. It is an attempt to hold companies accountable and could harm investors.

The SEC is targeting Gemini Earn, a program that promised consumers high interest returns for parking money in these crypto accounts. She made the same accusation against Postanko.

“We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements intended to protect investors,” SEC Chairman Gary Gensler said in a statement announcing the charges. Registration, he said, “is not optional. That’s the law.” The agency did not specify the amount of compensation it is seeking.

The SEC’s move is part of the government’s efforts to hold crypto companies accountable for massive customer losses, which have mushroomed since cryptocurrency exchange FTX exploded in November, sending ripples through the industry. The SEC and the Commodity Futures Trading Commission recently filed complaints against FTX co-founder Sam Bankman-Fried with the same goal in mind.

Under Earn, Gemini gives high rates to clients in exchange for lending their money. They did this in partnership with Genesis, which itself borrows money from Gemini at high rates. In recent weeks, executives at Gemini and Genesis have argued over who failed to fulfill their responsibility to refund consumers.

As a result, about $900 million has been frozen on Gemini Earn with no indication of when users will be able to access it.

Not every expert is convinced the SEC has a strong case.

Carol Goforth, a professor at the University of Arkansas School of Law and an expert on securities regulation, said it was not clear that the Gemini instance would pass one of several legal tests the government uses for securities.

“It’s deeply disturbing just to say that every cryptocurrency is a security,” she said. “It really depends on how the product, whether it’s Gemini Earn or whatever, is marketed. Not everyone is the same.”

The co-founders of Gemini, the Winklevosses, are known as provocateurs in Silicon Valley. The twin brothers were Olympic rowers from Harvard who sued Mark Zuckerberg, claiming that he and his partners stole the idea of ​​Facebook from the company they founded. Forming as early adopters of cryptocurrency, they transformed into some of the most successful entrepreneurs in the industry as Gemini became one of the most popular cryptocurrency lending platforms.

A big reason for that popularity was Earn, which since its launch almost two years ago promised returns of as much as 8 percent.

Genesis is part of Digital Currency Group, or DCG, a conglomerate led by financial mogul Barry Silbert whose holdings include asset manager Grayscale Investments and news platform CoinDesk.

Neither Gemini’s Cameron Winklevoss nor a representative for Genesis responded to a request for comment.

The SEC has tried to use this power before. For example, in early 2022, the agency and state securities agencies charged and reached a $100 million settlement with crypto lender BlockFi.

SEC officials told reporters Thursday that the move against Gemini and Genesis is part of a larger plan to go after crypto companies that are not registered as securities. They said they don’t differentiate between Gemini and Genesis in running the action.

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