Are Any Crypto Companies Safe?

Number of the Week: $10.7 billion (explanation below)

Are Any Crypto Companies Safe?

The crypto world went into a tailspin this week, as the US Securities and Exchange Commission (SEC) chased after two of the world’s biggest players, the crypto trading and lending hub Genesis and Gemini, a crypto exchange. These companies are well-known not only for their scale, but because of their ownership; Genesis is part of the Digital Currency Group (DCG), owned by crypto pioneer Barry Silbert. (The company’s legal headaches may not end with the SEC action; on January 6, Bloomberg reported that federal prosecutors are investigating DCG’s internal financing.) Gemini is probably best-known for being owned by the Winklevoss twins.

According to the SEC, Gemini’s “Earn” program, which promised return rates as high as 8% on crypto holdings, gave customers’ digital assets to Genesis. Genesis invested those assets and paid Earn holders their returns, minus an “agent fee” that was paid to Gemini. Starting from early 2021, some 340,000 retail investors, mostly within the United States, signed up for Earn, investing some $900 million. Then, in November 2022, as the crypto world continued to fall apart, Genesis announced that it was suspending investors’ ability to withdraw their money, which remains in limbo.

The SEC charges that the Earn program involved unregistered securities, and thus violated US securities law. The agency also seeks “permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.”

The crypto world called foul.