Genesis will pay $21 million to the SEC after reimbursing creditors

In exchange, the regulator will drop a civil lawsuit about unregistered securities trading

02.02.2024 - 14:02

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3 min

What’s new? Bankrupt crypto broker Genesis, part of Barry Silbert’s Digital Currency Group (DCG) conglomerate, has settled claims by the US Securities and Exchange Commission (SEC). As part of the deal, the SEC will drop a civil lawsuit alleging violations of securities laws related to the Gemini Earn revenue program. For its part, Genesis has pledged to pay a $21 million fine if it manages to fully pay its creditors in bankruptcy proceedings before doing so.

Bloomberg’s material

What else is known? Genesis launched the Earn program together with the crypto exchange Gemini in December 2020. Under it, the exchange’s customers could lend their cryptocurrencies to Genesis at high-interest rates. In January 2023, Genesis filed bankruptcy, owing the exchange’s customers nearly $1 billion.

That is when the SEC accused the partners of making unregistered offers and sales of securities to retail investors. Officials said the Earn program allowed them to illegally solicit cryptocurrencies worth billions of dollars from hundreds of thousands of investors.

The new agreement between the SEC and Genesis must be approved by a bankruptcy judge. Creditor representatives noted that it would save money that would otherwise go toward continued litigation. The agreement will also allow Genesis’ trustees to focus on reimbursing creditors.

DCG repays $700 million in debt to bankrupt brokerage subsidiary Genesis

In just one year, the conglomerate repaid $1 billion in short-term loans

In October, Gemini sued Genesis for $1,6 billion in shares of Grayscale’s GBTC trust, which is currently converted into a spot bitcoin exchange-traded fund (ETF). Genesis filed a counterclaim for $689 million.

That is when New York Attorney General Letitia James accused Gemini, Genesis, and DCG of defrauding 230 000 investors of $1,1 billion. Barry Silbert denied the allegations. He said James’ lawsuit overlooks the fact that Genesis’ problems were caused by the collapse of cryptocurrency hedge fund Three Arrows Capital (3AC).

Last November, Genesis settled with 3AC. So, instead of the originally planned $1 billion, Genesis will pay 3AC only $33 million.

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