SEC Charges Gemini and Genesis With Selling Unregistered Securities

Agency Specifically Targets Gemini’s Earn Product

After the FTX fiasco, regulators are out for blood. 

Case in point — the Securities and Exchange Commission (SEC) has just charged Genesis, a digital assets financial services firm, and Gemini, a centralized crypto exchange, with the sale of unregistered securities.

The SEC specifically targeted Gemini’s Earn product, which promised users a healthy yield on their deposited crypto assets. Gemini deployed those assets with Genesis, which is under financial stress after FTX’s collapse left it with a hole in its balance sheet. 

“Today’s charges build 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,” Gary Gensler, the SEC’s chair, said in a statement. 

Some believe the SEC should have acted sooner.

Mike Dudas, the founder of The Block, posited that the SEC should have pressed charges before Gemini and Genesis showed signs of falling apart. 

Gemini Earn paused withdrawals on Nov. 16, citing Genesis’ lending arm, which holds the bulk of Earn assets and also paused withdrawals, as the reason for the move. 

Earn’s approximately 340,000 users have yet to get their deposits back.  

Cameron Winklevoss, a co-founder of Gemini alongside his twin brother Tyler, has been embroiled in a public spat with Barry Silbert, the CEO of Genesis’ parent company, Digital Currency Group (DCG), over the fate of the frozen Earn assets. 

Tyler Winklevoss condemned the SEC’s action on Twitter, calling it “disappointing” and “counterproductive.” The Gemini co-founder said that his firm and the SEC have been communicating about the Earn product for 17 months and only when Genesis paused withdrawals did the SEC raise the possibility of an “enforcement action.”

From a DeFi perspective, where protocols dictate where value flows rather than centralized actors, the SEC’s ruling isn’t necessarily a bearish signal — Gemini Earn differs from DeFi lending protocols like Aave or Compound in that it took custody of users’ assets. 

This allowed Earn’s users to get caught out in the cold as their assets weren’t under their control, reinforcing a central tenet of DeFi yet again. 

“Not your keys, not your coins.”