Crypto platforms Gemini and Genesis accused of illegal fundraising

Ascension in the crypto ecosystem is confirmed. After FTX, Genesis and Gemini, two cryptocurrency brokerage and lending companies are being sued. The US securities regulator, the SEC, filed a lawsuit against two companies on Thursday over the offer to provide loans in cryptocurrencies without registering with the competent bodies. The institution claims that Genesis then had about $900 million cryptocurrencies borrowed from about 340,000 customers. However, both companies, through this offer, raised billions of dollars in assets cryptocurrencies with hundreds of thousands of investors “, it is stated in the SEC communique.

More charges related to the case could be announced later, says the agency, which is currently seeking to demonstrate that it is regulating the sector well after the uproar caused by the failure of FTX and Alameda Research on November 11, 2022.

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Genesis, a subsidiary of Digital Currency Group, presents itself as a brokerage platform for cryptocurrencies intended for professional investors. Founded by the Winklevoss brothers, popularized by the movie ” Social Network in the genesis of Facebook, Gemini offers the general public several financial products related to cryptocurrencies. According to the SEC’s complaint, the two companies entered into an agreement in late 2020 where Genesis would offer Gemini customers their own lending option. cryptocurrencies in exchange for interest, in a program called Gemini Earn. The twins took orders along the way as Genesis used it cryptocurrencies at her discretion.

Problem, some of the customer money deposited in Genesis was itself redeposited in FTX. So when Sam Bankman-Fried’s cryptocurrency exchange froze withdrawals and then went bankrupt within days, 30% of Genesis’ funds were tied to it. As a result, Genesis, which is currently unable to refund all of its customers, froze its and Gemini’s customer withdrawals for two months. Genesis is now trying to find a solution to refund 30% of frozen customer funds and specifically wanted to raise funds for this, without success according to Bloomberg.

The second problem, Genesis is in conflict with Digital Currency Group, another company specializing in cryptoassets accused by Cameron Winklevoss has taken out loans from Genesis without paying them back, which would block the repayment of other customers. ” It now becomes clear that you have implemented blocking tactics in bad faith “, the businessman denounced in an open letter published on Twitter on January 2. ” If you imagine that you can hide quietly in your ivory tower and everything will magically work out, or it’s someone else’s problem, you’re swimming in fantasy. “, he adds. In response, Barry Silbert, CEO of Digital Currency Group asserted that “ DCG did not borrow $1.675 billion from Genesis. DCG has never missed an interest payment on Genesis and is current on all outstanding loans “.

Faced with Genesis’ liquidity crisis, the company had to lay off 60 employees, or 30% of its workforce, in early January. As we continue to navigate unprecedented industry challenges, Genesis has made the difficult decision to reduce its global workforce “, a company spokesperson explained in an email. The company had already reduced its workforce by 20% in August.

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SEC accuses Genesis of illegal fundraising

In its appeal, the SEC considers that Gemini Earn is in fact assimilated to fundraising in the markets and as such should have been registered with its services. Such a process is supposed to protect investors by making a lot of information public.

With these new charges, the SEC wants to “ make it clear to the market and investors that lending platforms cryptocurrencies and other intermediaries must comply with our well-tested securities laws “, commented its president Gary Gensler, in the press release. Both companies did not immediately respond to requests from AFP.

(With AFP)