Contagion to the crypto ecosystem confirmed. Following FTX, Genesis and Gemini, two cryptocurrency lending and brokerage firms were sued. The US securities regulator, the SEC, filed a lawsuit on Thursday against the two companies for offering to lend cryptocurrencies without registering with the competent authorities. The institution says Genesis then held about $900 million cryptocurrencies borrowed by approximately 340,000 customers. However, the two companies have, through this offer, raised billions of dollars in assets cryptocurrencies with hundreds of thousands of investors “says the SEC in a press release.
More charges related to this case could be announced later, says the agency, which is currently trying to prove it regulates the industry well after the uproar caused by the bankruptcies of FTX and Alameda Research on Nov. 11, 2022.
A crypto financial services company, weakened by FTX bankruptcy.
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 film ” The social network on the genesis of Facebook, Gemini offers several related financial products to the general public cryptocurrencies. According to the SEC complaint, the two companies entered into an agreement in late 2020 under which Genesis would offer Gemini customers the ability to lend their cryptocurrencies in exchange for interest, in a program called Gemini Earn. Gemini took errands along the way while Genesis used the cryptocurrencies at its discretion.
Problem, some of the clients money deposited with Genesis was in turn redeposited with FTX. So when Sam Bankman-Fried’s crypto exchange blocked withdrawals and then went bust within days, 30% of Genesis’ funds were locked up on it. As a result, Genesis, which for the moment does not have the possibility to refund all its customers, has frozen the withdrawals of its customers and those of Gemini for two months. Genesis is now trying to find solutions to refund 30% of blocked customers’ funds and specifically wanted to raise money for this, without success according to Bloomberg.
Second issue, Genesis is in conflict with Digital Currency Group, another cryptoasset specialist firm accused by Cameron Winklevoss that he borrowed money from Genesis without paying it back, which would block other customers from repaying. ” Now it becomes clear that you have implemented bad faith blocking tactics “, denounced the entrepreneur in a vitriolic open letter posted on Twitter on January 2. ” If you imagine that you can quietly hide in your ivory tower and everything will magically work itself out, or it’s someone else’s problem, you’re swimming in fantasy. ”, he adds. In response, Barry Silbert, CEO of Digital Currency Group, said that “ DCG did not borrow $1.675 billion from Genesis. DCG has never missed an interest payment to Genesis and is up to date on all outstanding loans “.
Faced with the cash crunch that Genesis is going through, the company had to lay off 60 employees, or 30% of its workforce in early January. ” As we continue to face unprecedented industry challenges, Genesis has made the difficult decision to downsize its global workforce “, a company spokesman explained in an email. The company had already cut its workforce by 20% in August.
SEC accuses Genesis of illegal fundraising
In its complaint, the SEC believes that Gemini Earn is in fact assimilated to market fundraising and as such should have been registered with its services. This process should protect investors by making much information public.
With these new charges, the SEC wants to “ clarify to the market and investors that credit lending platforms cryptocurrencies and other intermediaries must comply with our well-established securities laws “, its president Gary Gensler commented, in the press release. The two companies did not immediately respond to AFP’s inquiries.
(with AFP)