US regulator the Securities and Exchange Commission (SEC) is suing Winklevoss Twin-owned cryptocurrency exchange Gemini and former business partner Genesis for the unregistered offer and sale of alleged securities to retail investors through the Gemini Earn lending programme.
Gemini initially partnered with Genesis, which is owned by Digital Currency Group, for the former’s Earn programme, which gave retail investors the opportunity to earn yield by lending their digital assets to borrowers.
A public spat has since erupted between the two companies, with Cameron Winklevoss accusing Genesis of withholding nearly a billion dollars in customers’ assets after Genesis suspended withdrawals in November 2022.
As of today, investors are still unable to withdraw their crypto assets.
Read more: Winklevoss-Genesis spat reaches new levels of vitriol
Now both entities have come into the SEC’s crosshairs.
“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” said SEC chair Gary Gensler.
“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… It’s not optional. It’s the law,” Gensler stated.
The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
Tyler Winklevoss called the charges “disappointing… This action does nothing to further our efforts and help Earn users get their assets back. Their behaviour is totally counterproductive”.
“The SEC chose to announce their lawsuit to the press before notifying us. Super lame,” Tweeted Winklevoss, adding: “It’s unfortunate that they’re optimising for political points instead of helping us advance the cause of 340,000 Earn users and other creditors.
4/ We look forward to defending ourselves against this manufactured parking ticket. And we will make sure this doesn’t distract us from the important recovery work we are doing.Under the leadership of crypto sceptic Gary Gensler, the SEC has morphed into something of a bogeyman for the industry.— Tyler Winklevoss (@tyler) January 12, 2023
Gensler widely considers digital currencies, except for bitcoin (BTC), as unregistered securities, and has campaigned to bring them under applicable securities legislation.
Ripple Labs, developer of the US$19bn XRP payment token, has been locked in a legal struggle with the SEC since DEcember 2020, when the regulator accused Ripple of raising over US$1.3bn through an unregistered, ongoing digital asset securities offering.
Gensler has also refused to allow bitcoin-linked spot ETFs, much to the frustration of hte struggling Grayscale Bitcoin Trust (GBTC)
But Gensler has also come under fire for his handling of the FTX scandal.
Democrat Ritchie Torres asked the US Government Accountability Office (GAO) to conduct a review of the SEC’s failure to protect the public from “the egregious mismanagement and malfeasance of FTX.”
Matthew Sigel, head of digital assets research at New York fund manager VanEck, went as far as to theorise that crypto permabear Gensler could be on the way out for his alleged mismanagement of the scandal.
Investigations into other securities law violations and into other entities relating to Gemini’s and Genesis’ alleged misconduct are ongoing.