Genesis Global Capital to Pay SEC $21 Million for Violating Securities Laws
On March 28 Sam Bankman-Fried, co-founder of the defunct crypto currency exchange FTX was sentenced to 25 years in prison and ordered to pay a $11 billion fine for defrauding FTX users.1 When FTX collapsed in November 2022, Genesis Global Capital had approximately $175 million in funds with FTX. Subsequently, Genesis paused withdrawals from its Gemini Earn program, which was a lending program which allowed investors to earn interest on their digital assets. At the time Gemini Earn had approximately $900 million in assets from 340,000 users. 2
The U.S. Securities and Exchange Commission (SEC) charged Genesis and Gemini Trust Company, LLC, on January 12, 2023 with failing to comply with securities laws through the unregistered offer and sale of crypto asset securities through the Gemini Earn program.3 A week later, on January 19, 2023, Genesis Global Capital and two affiliates filed for bankruptcy protection. The 340,000 people who had invested a total of about $900 million in the Gemini Earn program through Genesis have been unable to access or withdraw their crypto assets.
Genesis Global Capital, LLC, agreed on March 19 to a final judgement ordering the company to pay a $21 million civil penalty.4 All other allowed claims by the bankruptcy court, including claims by retail investors in Gemini Earn, will be settled prior to the SEC receiving any portion of the penalty. The SEC also imposed a permanent injunction to settle charges that Genesis Global Capital engaged in the unregistered offer and sale of securities through the Gemini Earn program.
In the press release announcing the settlement SEC Chair Gary Gensler was quoted as saying, “We charged Genesis with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors. 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.”5
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1 Sam Bankman-Fried Sentenced to 25 years in Prison by Shayna Jacobs and Julie Weil, 3/28/2024
Link: https://www.msn.com/en-us/money/companies/sam-bankman-fried-sentenced-to-25-years-in-prison/ar-BB1kHwSM
2 The Bankrupt Crypto Firm Genesis Will Pay the SEC $21 Million Over its Lending Program by Vinamrata Chaturvedi, 3/19/2024
Link: https://www.msn.com/en-us/money/markets/the-bankrupt-crypto-firm-genesis-will-pay-the-sec-21-million-over-its-lending-program/ar-BB1kaI29
3 SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities through the Gemini Earn Lending Program, 1/12/2023
Link: https://www.sec.gov/news/press-release/2023-7
4, 5 Genesis Agrees to Pay $21 Million Penalty to Settle SEC Charges, 3/19/2024
Link: https://www.sec.gov/news/press-release/2024-37