Genesis To Pay $21M In SEC Case Settlement Over Defunct Gemini Earn Program

Bankrupt cryptocurrency lender Genesis has agreed to pay $21 million as a civil penalty to settle charges lodged by the U.S. Securities and Exchange Commission (SEC) over the defunct Gemini Earn program of crypto exchange Gemini.

"Under the terms of the settlement, the SEC will not receive any portion of the penalty until after payment of all other allowed claims by the bankruptcy court, including claims by retail investors in the Gemini Earn program," the financial regulator said in a press release Tuesday.

The settlement backs previous actions initiated by the financial regulator to ensure that crypto lending platforms comply with "our time-tested securities laws," said SEC chair Gary Gensler. He noted that going after firms selling unregistered securities was the best move to protect investors, and it promotes market trust. "It's not optional. It's the law," he pointed out.

Genesis and Gemini were charged by the SEC early last year following the collapse of the Gemini Earn program, which promised high returns for investors who lend their cryptocurrencies. Some of the loans were made to Genesis, which then lent crypto to other industry players.

The regulator said the two companies offered unregistered through the Gemini Earn program and "raised billions of dollars worth of crypto assets from hundreds of thousands of investors."

The program was halted late in 2022 during a market-wide crypto crash that was triggered by the collapse of FTX.

"The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities law," said Gurbir S. Grewal, the SEC Division of Enforcement director.

As per the press release, Genesis did not admit or deny the SEC's allegations in its complaint, but "consented to the entry of a final judgment permanently enjoining Genesis from violating Section 5 of the Securities Act."

News of the settlement came about two weeks after a judge denied motions filed by both Genesis and Gemini to dismiss the SEC's lawsuit, dealing a major legal blow in their battle to assert that the Gemini Earn program offered loans, not securities.

In its motion, Gemini said the regulator was turning the program into "something it was not," while Genesis said the SEC was unable to "plausibly" prove that the program offered security notes.

Meanwhile, Gemini reached a settlement with the New York State Department of Financial Services (NYDFS) to return at least $1.1 billion in digital assets to users of the collapsed lending program.