Bankrupt crypto lender Genesis has finalized a $21 million settlement with the U.S. Securities and Exchange Commission (SEC) over charges of conducting unregistered offers and sales of securities through Gemini Earn, an interest-earning program launched in partnership with Gemini.
The settlement follows Gemini’s recent announcement that the company will repay $1.1 billion to customers of Gemini Earn.
According to a statement, other claims, including retail investors, will be given priority in receiving compensations or returns owed to them. Only after these claims are fully addressed will the SEC receive the penalty payment.
Pushing Deals Forward
SEC Chair Gary Gensler said that the settlement is a clear example that crypto intermediaries who look to do business must comply with the existing laws.
To wit,
“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,” said Gensler.
Launched in 2021, the Earn product allowed customers to lend their digital assets to get up 7.4% APY in return. The program was indeed a successful initiative for Genesis and Gemini. However, it hit a roadblock following the collapse of crypto exchange FTX in November 2022 that put the two companies in major financial losses.
After FTX news broke out, Genesis Trading announced that it halted redemptions and new loan originations in the lending business. It was estimated that Genesis Trading had $175 million stuck on FTX. As Genesis Trading temporarily shut down its operations, Gemini had to discontinue Gemini Earn. Assets of Earn customers, however, are still stuck on Genesis.
The Ghosts of The Bear Market
The case got more complicated as Gemini filed a lawsuit against Genesis, Genesis’s parent company Digital Currency Group (DCG) and founder Barry Silbert. Gemini accused these entities of fraud and misappropriation of $1.2 billion in assets stuck on Genesis, and demanded a $1.6 billion repayment.
Genesis then brought a counterclaim against Gemini, looking to get back $689 million withdrawn by the exchange before Genesis’ bankruptcy.
Apart from claims against each other, Genesis and Gemini faced claims from the US regulators. In January last year, the SEC filed a lawsuit against Genesis and Gemini for selling and offering securities through Gemini Earn without registration. Earlier last month, Genesis agreed to pay the SEC $21 million to close the case.
In other developments, Gemini reportedly agreed to pay a $37 million in penalty to the New York Attorney General (NYAG). The NYAG previously accused the exchange of deceiving customers and misrepresenting Gemini Earn and Genesis.
Meanwhile, the exchange also plans to refund at least $1.1 billion to Earn customers if the bankruptcy court approves. Notably, Gemini said that customers will receive “100% of their assets back in kind,” which means at the current prices of their digital assets.
Cleaning Up The Mess
Companies heavily impacted by FTX and Three Arrows Capital (3AC) sagas have recently had developments in their bankruptcy proceedings. Earlier this month, BlockFi, a crypto lending protocol with close relationship with FTX and its sister company Alameda Research, reached a $874 million settlement with FTX and Alameda.
As noted in the bankruptcy court filings, BlockFi will get $185.2 million from FTX and $689.3 million from Alameda Research. This amount could result in a full recovery of value for BlockFi customers. Plus, $250 million will be prioritized for payment to BlockFi immediately after FTX’s restructuring plan grants approval. In return, FTX will drop its complaints against BlockFi.
Last month, a US bankruptcy court approved a settlement between BlockFi and 3AC to resolve the counterclaims. However, the settlement details have not yet been disclosed.
