SEC sued Genesis and Gemini over the Earn lending program

The U.S. Securities and Exchange Commission filed a civil complaint against Genesis Global Capital LLC and Gemini Trust Company LLC on January 12, 2023, alleging that the companies offered and sold unregistered securities through the Gemini Earn crypto-asset lending program.

Filed in the U.S. District Court for the Southern District of New York, the complaint alleged violations of Sections 5(a) and 5(c) of the Securities Act of 1933. The SEC requested permanent injunctions, disgorgement with prejudgment interest and civil penalties. Those were allegations and requested remedies, not findings by a court on January 12.

The action mattered beyond the two companies. It applied the SEC’s registration theory to a retail crypto-lending arrangement in which an exchange served as an intermediary while another company controlled and deployed customer assets. It also arrived while hundreds of thousands of Earn customers were already unable to retrieve their crypto assets.

How Gemini Earn operated

According to the complaint, Genesis and Gemini began offering Gemini Earn to retail investors in February 2021. Customers entered a standard three-party agreement under which they tendered eligible crypto assets to Genesis, with Gemini acting as their agent. Genesis pooled those assets with assets obtained from other investors and generally lent them to institutional counterparties or used them as collateral for its own borrowing.

Genesis determined the gross interest rates, while Gemini selected an agent fee and distributed the remaining return to customers. The SEC said that, as of October 2022, advertised net annual percentage yields ranged from 0.45% to 8.05%, depending on the asset. Gemini’s agent fee ranged from 0.06% to 4.29%. For the three months ended March 31, 2022, the complaint attributed approximately $2.7 million in agent fees to Gemini.

Those figures came from the SEC’s allegations and specified historical windows; they were not independently audited measurements published by Coinburn. The complaint also said more than 50 crypto assets had been eligible for the program, including bitcoin, ether, USD Coin and dogecoin.

Frozen assets raised the stakes

Genesis suspended withdrawals associated with Gemini Earn on November 16, 2022, saying withdrawal requests had exceeded its available liquidity after crypto-market volatility. The SEC estimated that Genesis then held approximately $900 million in assets belonging to approximately 340,000 Earn investors, most of them in the United States.

By January 12, 2023, the complaint said those investors still could not withdraw their assets. Gemini had terminated the Earn program earlier in January, but termination did not itself return the assets or resolve the parties’ obligations.

The SEC argued that the Earn agreements qualified as securities both as notes under the Supreme Court’s Reves framework and as investment contracts under Howey. It alleged that no registration statement had been filed or was in effect for the offering. The complaint further asserted that customers therefore lacked disclosures about Genesis’s financial condition, liquidity, counterparties, collateral and deployment of their assets.

That was the regulator’s litigation position, not a final adjudication. Registration as a money-services business or operation by Gemini as a New York limited-purpose trust company did not, in the SEC’s view, substitute for Securities Act registration of Earn.

The event-day response and limits

Reuters reported on January 12 that Gemini co-founder Tyler Winklevoss called the complaint disappointing and said Gemini intended to defend itself. Genesis did not immediately respond to Reuters’s request for comment. The SEC also said related investigations remained open.

The filing established a major enforcement confrontation, but it did not determine customer recoveries, Genesis’s solvency or the ultimate legal status of every crypto-lending product. This reconstruction makes no claim about a same-day token-price reaction because no consistent venue, instrument and measurement window were necessary to establish the regulatory event. Developments after January 12, 2023 are intentionally excluded from the event-day account.