On January 12, 2023, the SEC filed a complaint in the United States District Court for the Southern District of New York (SDNY) against affiliated crypto firms Genesis Global Capital, LLC (Genesis) and Gemini Trust Company, LLC (Gemini), alleging that they violated federal securities laws by engaging in unregistered offer and sale of securities to US retail investors. According to the SEC, between February 2021 and November 2022, Genesis and Gemini offered an investment opportunity called the Gemini Earn program where investors tendered crypto assets to Genesis, and in exchange, Genesis promised to pay interest on those assets to investors.

According to the complaint, each Gemini Earn investor entered into a tri-party Gemini Earn agreement with Gemini and Genesis and both Genesis and Gemini marketed the Gemini Earn program touting the high interest rates that investors could earn. Genesis was the issuer and entity that received, pooled, deployed, and paid interest on the investors' assets and Gemini provided retail investors with access to Genesis, which otherwise only engaged in crypto-asset transactions with large institutional and other accredited investors.

The SEC asserts that Genesis and Gemini offered and sold the Gemini Earn agreements through the Gemini Earn program without registering the offer and sale with the SEC as required by the federal securities laws and as a result investors lacked material information about the program and US retail investors who participated in the program suffered significant harm. In November 2022, Genesis announced that it would not allow hundreds of thousands of retail investors to withdraw their crypto assets from Gemini Earn because withdrawal requests exceeded its liquidity following volatility in the crypto-asset markets. While the Gemini Earn program has been terminated, retail investors still cannot withdraw assets. However, Genesis and Gemini continue to operate, although it has been reported that a bankruptcy filing is imminent.

According to the SEC, under the standard in Reves v. Ernst & Young (494 U.S. 56 (1990)), the Gemini Earn agreements were notes that were offered and sold through Gemini Earn as securities. Additionally, the offer and sale of Gemini Earn agreements through the Gemini Earn program is considered an offer and sale of investment contracts under the Howey test (see SEC Regulation of Digital Assets: The Howey Test). Neither Genesis nor Gemini filed a registration statement with the SEC for the offer and sale of securities through the Gemini Earn program. Therefore, the SEC alleges that Genesis and Gemini violated Sections 5(a) and 5(c) of the Securities Act of 1933, as amended (15 U.S.C. §§ 77e(a) and 77e(c)) and seeks to:

Update: On January 31, 2024, Genesis and its affiliates filed a settlement agreement with the SEC in the US Bankruptcy Court for the SDNY. Under the terms of the settlement, the SEC will receive an allowed general unsecured claim against the bankruptcy estates of Genesis and its affiliates in the amount of $21 million. The fine will be paid after all other allowed administrative expenses, secured, priority, and general unsecured claims. Genesis did not admit or deny wrongdoing in the settlement agreement.