SEC Charges Over Gemini, Genesis Earn Program Latest Shot At Crypto Lending

The SEC’s recent charge over cryptocurrency exchange Gemini and Genesis for a loan product is yet another warning shot to the sector on yield-bearing accounts. On January 12, the US Securities and Exchange Commission sued Gemini and Genesis for the unregistered marketing and securities sale to retail investors via a Gemini crypto loan scheme.

Additionally, that initiative has been the focus of a public dispute between Gemini’s Cameron and Tyler Winklevoss and Barry Silbert, the chairman of Genesis’ Digital Currency Group. However, Alex More stated that a partner at Carrington, Coleman, Sloman & Blumenthal specialized in digital assets. It creates a warning flag for other exchanges and actors in the crypto sector that are also selling yield-bearing products, which is quite honestly a lot of the exchanges.

Therefore, SEC Chair Gary Gensler said Gemini Earn was discontinued earlier last month. According to the SEC, retail investors in Gemini Earn have been unable to withdraw their funds. These and other accusations filed this week demonstrate that crypto lending platforms and other intermediaries must comply with securities rules. 

We are excited to defend ourselves against this fabricated parking ticket. And we will make sure that this does not detract from the critical recovery work we are undertaking, “Tyler Winklevoss, co-founder of Gemini, responded to the claim through Twitter. A representative for Digital Currency Group declined to comment on the allegations.

4/ We look forward to defending ourselves against this manufactured parking ticket. And we will make sure this doesn’t distract us from the important recovery work we are doing.

— Tyler Winklevoss (@tyler) January 12, 2023

As per Michael Piwowar, Former Republican SEC commissioner and senior vice president of finance at the Milken Institute, the SEC contends that the Gemini Earn initiative included a securities offer and sale.  The subtlety is that the SEC is not charging that the underlying crypto assets are securities in and of themselves,” Piwowar added.

SEC’s Overall stance On Crypto & No More Borrowing 

The SEC has already charged a crypto lending company. Before filing for bankruptcy, BlockFi agreed to a $100 million settlement with the government in February and stated that it would stop making unregistered offers and sales of its loan product.

Piwowar believed it was noteworthy that the SEC made no charges about whether the underlying cryptocurrency, in this case, is security. However, he acknowledged that the agency might still make such claims in future cases.

According to Zachary Fallon, a partner at Ketsal, a legal company that focuses on the fintech and digital asset industries, the SEC’s decision this week is yet another cautionary note for crypto firms interested in lending and yield products.

Moreover, Other exchanges have attempted to launch loan products. Coinbase had planned to develop its crypto loan product but scrapped the idea in September 2021 due to the SEC’s determination that it would constitute a security.

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Platforms that offer these kinds of programs will be continually target for them, and if they provide them, they need to make a correct legal and risk assessment. Piwowar believed it was noteworthy that the SEC made no charges about whether the underlying cryptocurrency, in this case, is security. However, he acknowledged that the agency might still make such claims in future cases.

Furthermore, Piwowar noted that it implies they don’t think they need to make those arguments in this case. L Vigne also stated that the move serves as a reminder that the agency believes that practically everything in the cryptocurrency sector should be subject to its regulatory system.