The SEC charged the Winklevoss twins’ Gemini crypto exchange and its lending partner Genesis this week with selling unregistered securities in the form of a “Gemini Earn” program that sparked a $900 million crisis.
Regulators are seeking to recover any “ill-gotten gains” generated by the interest-bearing account program, which billed itself as a way for customers to earn 8% annual interest on their digital currency holdings. The accounts have been frozen since November, with customers unable to access their funds.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said in a statement.
“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,” Gensler added.
Genesis, the key lending partner for “Earn” accounts, blamed its decision to halt customer withdrawals in November on “market turmoil” caused by FTX’s sudden collapse into bankruptcy.
The unresolved freeze on customer accounts has sparked a war of words between the Winklevoss twins and Barry Silbert, whose Digital Currency Group owns Genesis. The brothers have pinned the blame on Silbert and accused him of engaging in “bad faith stall tactics.” Silbert has denied wrongdoing.
“Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing,” the SEC added.
The SEC complaint marked another headache for Cameron and Tyler Winklevoss, who have reinvented themselves as crypto kingpins in the years since their high-profile legal clash with Mark Zuckerberg over the founding of Facebook.
Tyler Winklevoss slammed the agency’s move as “disappointing” in a lengthy Twitter thread. The Gemini co-founder said the suit was “counterproductive” and asserted that the “Earn” program has been regulated by the New York Department of Financial Services.
“For the avoidance of doubt, Gemini has always worked hard to comply with all relevant laws and regulations,” Winklevoss said. “Any suggestion to the contrary is unsupported by the facts.”
Last month, a pair of Gemini Earn investors slapped the Winklevoss twins with a class-action lawsuit, alleging the exchange sold the accounts to customers without registering them as securities and fully alerting customers of the potential risks.
The lawsuit said Gemini “refused to honor any further investor redemptions, effectively wiping out all investors who still had holdings in the program.”
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