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The crypto companies Genesis and Gemini with selling illegal securities as part of an investment product that promises high yields to the depositors.
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Gemini, a cryptocurrency exchange, and Genesis, a cryptocurrency lender, joined forces in February 2021 for the Gemini product known as Earn, which promised returns that could reach 8 per cent for customers.
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As per the SEC, Genesis loaned Gemini customers' crypto and transferred some of the gains back to Gemini and then deducted an agent fee, which can be up to 4 per cent, before returning the remainder of the profits to its customers.
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Genesis ought to have registered that item as a securities offering, SEC officials said in an application made in Manhattan Federal Court.
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“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,” SEC chair Gary Gensler said in a statement.
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Genesis' Earn program, which is supported by Genesis lending activities, complied with the SEC's definition of having both an investment contract as well a note, SEC officials said.
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Two of these features are an integral part of how the SEC determines whether an offer is an investment.
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The SEC states that the Earn program has netted businesses billions of dollars worth of cryptocurrency assets.