Genesis Settles for Millions with US Regulatory Authority

2024-02-19, 09:49

[//]:content-type-MARKDOWN-DONOT-DELETE
![](https://gimg2.gateimg.com/image/article/1700024128RDZZ 1.jpeg)

Genesis has made a settlement with the SEC to avoid a prolonged legal case on the Gemini Earn program.

The United States Department of Justice has filed an objection to Genesis' Bankruptcy Plan.

Gemini claims that it used the controversial $282 million to establish a reserve fund to cater for its Earn user program

Keywords: genesis Gemini debate, SEC settlement, Gemini crypto exchange, Genesis Bankruptcy, Gemini Earn customers, Gemini Earn users, Gemini Earn program, Bankrupt cryptocurrency lender, Bankrupt crypto lender, lawsuit with US SEC, security law violations
## Introduction 
During 2022 and 2023 the [United States filed several lawsuits against crypto firms](https://www.gate.io/learn/articles/the-wild-west-of-the-crypto-world/670 "United States filed several lawsuits against crypto firms") it accused of violating the country’ securities law. Instead of legally battling with the SEC some of the companies opted for amicable settlements with it. Today, we discuss a settlement between Genesis and the SEC. We will also look at Genesis' progress in its Chapter 11 Bankruptcy Plan.

Read about recent crypto firms Bankruptcies: [Crypto Bankruptcies: Kirkland & Ellis Secures $120 Million in Celsius, Core Scientific, BlockFi, Voyager Cases](https://www.gate.io/blog_detail/3767/crypto-bankruptcies-kirkland-ellis-secures-120-million-in-celsius-core-scientific-blockfi-voyager-cases "Crypto Bankruptcies: Kirkland & Ellis Secures $120 Million in Celsius, Core Scientific, BlockFi, Voyager Cases")
## Genesis Pays $21 Million to SEC in Settlement over Gemini Earn Program Violations
Crypto lender Genesis Global made a settlement with the United States SEC where it will pay $21 million over its Gemini Earn lending program. However, that settlement is applicable only if Genesis is able to repay its customers in full.

This deal enables Genesis to prevent costs and risks associated with a legal battle against the SEC which accuses it of selling unregistered securities. Also,the settlement will allow the crypto firm to focus on paying its Bankruptcy cryptocurrency lenders and the Gemini earn customers.

In the meantime, Genesis has not admitted or denied any wrongdoing pertaining to the United States security law violations. As a fact, the SEC filed a lawsuit against Genesis in January 2023. That lawsuit with US SEC alleges that Genesis and its partner Gemini crypto exchange, sold securities through Gemini Earn, their joint crypto lending program.

For context, the two companies jointly established the Gemini Earn Program which would allow Gemini customers to lend their crypto assets to Genesis in return for interest. As a result, Genesis collected cryptocurrencies worth billions of dollars from crypto investors which became one of the SEC’s key complaints.

Through a press release, [Gary Gensler, the SEC Chair said](https://www.sec.gov/news/press-release/2023-7 "Gary Gensler, the SEC Chair said"), “We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors.”

He added, “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. Doing so best protects investors. It promotes trust in markets.”

It’s worth noting that the two crypto firms halted the Gemini Earn Program in November 2023, [spurring litigation with Digital Currency Group](https://www.gate.io/blog_detail/158/the-1st-cryptocurrency-investments-grayscale-what-is-gbtc "spurring litigation with Digital Currency Group"), Genesis's parent company – run by Winklevoss twins.

In the meantime, Genesis is proceeding with its plan to repay its customers in crypto assets or cash, depending on the currencies they deposited. To facilitate this the company aims to seek the court’s approval on its Bankruptcy plan on 14 February.

The Gemini Earn users are likely to get 100% of their assets, although Digital Currency Group owes Genesis $1.7 billion. The greatest challenge that Genesis faces at the moment is lack of adequate liquidity to meet its short-term financial obligations to the creditors.

However, there were a few options to raise the required cash within a reasonable time frame. For example, in November 2022 a creditors committee proposed a plan to liquidate some of the Bankrupt crypto leader’s assets after the crypto crunch which the collapse of FTX caused. The same proposal can work if Genesis fails to raise enough cash to pay the creditors.
## Genesis’ Chapter 11 Bankruptcy Plan Hits a Wall
Genesis Global filed for Bankruptcy in January 2023 after the financial constraints which the 2022 crypto winter caused. Recently, the Genesis’ legal team has proposed 14 February as a hearing date to recognize the SEC settlement as part of the Bankruptcy case.

Nonetheless, Gemini is facing constraints from Digital Currency Group and the United States Department of Justice on its Chapter 11 Bankruptcy Plan. First off, the US Department of Justice filed an objection to Genesis’ Bankruptcy Chapter 11 plan.

Secondly, Digital Currency Group has also objected to Genesis Bankruptcy plan. Its main reason for doing so is that Genesis has already overpaid its creditors. As per [TheBlock, Digital Currency Group said](https://blockworks.co/news/dcg-opposes-genesis-bankruptcy-plan "TheBlock, Digital Currency Group said"), “DCG would support a plan that pays creditors one hundred cents on the dollar, and the Estates currently have sufficient assets to do so.”

It added that the plan “disproportionately favors a small controlling group of creditors over others,” and “pays unsecured creditors hundreds of millions of dollars more than the full amount of their petition date claims”
“It also strips DCG of other valuable economic and corporate governance rights further violating the Bankruptcy Code and demonstrating a lack of good faith”, it further claimed.
## Genesis Faces Scrutiny for Withdrawing $282 Million before Declaring Insolvency 
In the meantime, there is controversy surrounding the $282 million Genesis withdrew a few months before it declared insolvency in 2023. In fact, the firm withdrew the amount about 5 months before it filed for Bankruptcy on 20 January 2023. Gemini could have done so to increase its reserves.

In an X post, Gemini Trust Company confirmed that it used  $282 million, which Gemini Earn users' money, to set a reserve fund.  
![](https://gimg2.gateimg.com/image/article/170833615911.png)
Source: x.com

To clarify what happened to the $282 million, [Gemini Trust Company said](https://twitter.com/GeminiTrustCo/status/1707385495796228469 "Gemini Trust Company said"), “The Gemini Earn Program Terms permitted Gemini to establish a “liquidity reserve” for the benefit of Earn users by holding back a portion of the money they deposited into the Earn program.”

“Amidst the broad market turmoil in the summer of 2022, we decided to increase the liquidity reserve. As a result, we pulled back $282 million of Earn users’ funds from Genesis on August 9, 2022 and held those funds in the liquidity reserve for their benefit,” it added. 
## Conclusion 
Genesis made a financial settlement with the SEC to avert a prolonged legal battle that could lead to high costs and regulatory risks. In the meantime, the company is willing to repay its creditors and customers once the court approves its Bankruptcy plan. Also, Gemini Trust Company said that it used the $282 million to establish a “liquidity reserve” for the benefit of Earn users.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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