The Securities and Exchange Commission (SEC) has charged crypto firms Genesis and Gemini with selling unregistered securities in connection with a high-yield product called Earn. The product, which was launched in February 2021, was a partnership between crypto exchange Gemini and crypto lender Genesis and promised yields of up to 8% for customers. According to the SEC, Genesis loaned out crypto assets to Gemini’s users, and a portion of the profits were sent back to Gemini, who then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users.
The SEC claims that this product should have been registered as a securities offering, as it met the SEC’s definition of a security by including both an investment contract and a note, and generated billions of dollars in crypto assets for the companies. This is a significant development as it shows the SEC’s increasing scrutiny of the crypto industry, and their determination to ensure that crypto firms comply with securities laws.
The SEC’s Chairman, Gary Gensler, said in a statement that these charges build on previous actions and are meant to make it clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with the SEC’s time-tested securities laws. This sends a strong message to the crypto industry that they will be held accountable for their actions and must follow the same rules and regulations as traditional financial institutions.
