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The United States Securities and Exchange Commission (SEC) today announced the settlement of charges brought against Genesis Global Capital, LLC and Gemini Trust Company, LLC for sell unregistered securities tied to the Gemini crypto lending program.

Crypto exchange Gemini has announced the launch of Gemini Earn in February 2021 in partnership with the Genesis lending platform. The loan product allows customers to lend their cryptocurrencies in exchange for an APY of up to 8%.

More app is coming

The SEC said Genesis used customer deposits to make loans and pay interest to customers. A portion of the interest, estimated at more than 4%, was paid back to Gemini as an agent’s commission before returning to clients.

The agency accused Genesis and Gemini of offering the product without registration.

“Today’s charges build on previous actions to make clear to the market and the investing public that crypto lending platforms and other intermediaries must comply with our time-tested securities laws,” according to SEC Chairman Gary Gensler.

More FTX Spinoffs

Genesis and Gemini had a close bond in the past. However, following FTX’s bankruptcy filing which sparked a financial crisis across multiple entities, Genesis suspended withdrawals and froze $900 million in funds from Gemini Earn users.

The troubled lender said that at the time the trading platform went insolvent, $175 million in funds were tied up on the FTX exchange, prompting it to request an emergency injection of $140 million to the parent company in order to remain in business.

The shutdown of Genesis Trading has forced commodity exchange Gemini Earn to issue a notification to stop withdrawals due to the storage of the aforementioned assets. Despite this, Gemini insists that they have complete faith in Genesis to fulfill their obligations.

Gemini, however, said on Jan. 8 that the exchange terminated its loan agreement with Genesis because the company violated the deadline for repaying consumer money. Additionally, Gemini shut down its Earn program.

Gemini Earn requires Genesis to provide a report on the status of opening withdrawals every Tuesday and Friday until a resolution is found, according to updates provided by Gemini.

Massive debts

The Financial Times recently revealed that Genesis’ debt is $3 billion. Massive indebtedness forced parent company DCG to sell most of the assets in the portfolio in order to raise enough capital to maintain operations.

Genesis debt includes $900 million for Gemini users, €280 million for Bitavo and customers of the Donut savings deposit service. The source said there is yet another group of Genesis creditors and they are represented by Prokauer Rose’s legal team.

The crypto market is still dealing with the consequences of FTX’s demise. Besides Genesis Trading, BlockFi is another to be badly damaged.

In November 2022, crypto lender BlockFi filed for Chapter 11 bankruptcy in the US after FTX declared bankruptcy, in an attempt to restructure the business instead of selling assets.

The fallout has also sparked a wave of withdrawals from major exchanges since late last year. Binance has faced massive exits from the platform. The world’s leading cryptocurrency exchange is struggling to retain investors.

Cash Panic

In recent weeks, investors have been rushing to withdraw their funds from cryptocurrency exchange Binance due to the collapse of rival market FTX.

Despite Zhao’s assurances and reassurances that the situation has calmed down, outflows from this exchange continue to flow strongly.

Many businesses failed this year, which made it a terrible year for the crypto industry. Many retail investors have lost all of their life savings investing in cryptocurrencies. After a year of high volatility and fraud, the cryptocurrency market is currently in a credibility crisis.

Many are beginning to wonder if there is a solution to rebuild, and more regulations should be implemented in the future to protect consumer rights.

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