Crypto lender Genesis Global, has agreed to a final judgment imposing a $21 million civil penalty and a permanent injunction as part of a settlement with the US Securities and Exchange Commission (SEC).

The settlement resolves charges against Genesis related to the unregistered offer and sale of “securities” through its crypto asset lending program, the Gemini Earn program.

Genesis Settles With SEC

According to the SEC’s investigations, Genesis engaged in the alleged unregistered offer and sale of securities by operating the Gemini Earn program without proper registration. 

The program allowed Gemini customers, including retail investors in the United States, to loan their crypto assets to Genesis in exchange for promised interest payments. However, in November 2022, Genesis announced that it could not honor withdrawal requests due to a lack of sufficient liquid assets following volatility in the crypto market.

At that time, Genesis held approximately $900 million in crypto assets from 340,000 Gemini Earn investors.

Genesis has agreed to pay a $21 million civil penalty for the settlement. However, the SEC will only receive its portion of the penalty after all other allowed claims, including those by retail investors in the Gemini Earn program, have been paid in the bankruptcy court. 

Genesis and two of its affiliates had filed for voluntary Chapter 11 bankruptcy on January 19, 2023, in the US Bankruptcy Court for the Southern District of New York.

Legal Challenges Resolved

SEC Chair Gary Gensler emphasized the importance of compliance with securities laws by crypto lending platforms and intermediaries. He stressed that failing to register such products and bypassing disclosure requirements is not optional but a legal obligation. Gensler further stated:

Today’s settlement builds on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.

Similarly, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized that no hype or advertising can substitute for the investor protection disclosures required by the securities laws.

It is worth noting that Genesis has also settled a separate lawsuit filed by New York Attorney General Letitia James. The lawsuit, which initially targeted Genesis, Digital Currency Group, and Gemini, accused them of defrauding customers of $1.1 billion. However, the settlement disclosed in the New York bankruptcy court focuses solely on Genesis.

As of the time of writing, the total value of the cryptocurrency market has experienced a 6% decline, reaching a valuation of $2.31 trillion. Simultaneously, Bitcoin (BTC), the leading cryptocurrency in the market, has undergone a 6.6% price correction, decreasing towards the $63,000 price level.

Featured image from Shutterstock, chart from TradingView.com