Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 1 of 22
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` UNITED STATES DISTRICT COURT
` SOUTHERN DISTRICT OF NEW YORK
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`SECURITIES AND EXCHANGE
`COMMISSION,
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`
`Plaintiff,
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`23-cv-287
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`ECF Case
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`
`
`Complaint
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`Jury Trial Demanded
`GENESIS GLOBAL CAPITAL, LLC and
`GEMINI TRUST COMPANY, LLC,
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`
`v.
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`Defendants.
`Plaintiff Securities and Exchange Commission (the “Commission” or “SEC”) files this
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`
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`Complaint against Genesis Global Capital, LLC (“Genesis”) and Gemini Trust Company, LLC
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`(“Gemini”) (collectively, “Defendants”) and alleges as follows:
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`SUMMARY
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`1.
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`Between February 2021 and November 2022, Genesis and Gemini engaged in an
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`unregistered offer and sale of securities to U.S. retail investors, in violation of the federal
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`securities laws. Through an investment opportunity that Defendants called the “Gemini Earn”
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`program, investors tendered crypto assets to Genesis and, in exchange, Genesis promised to pay
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`interest on those assets to investors. Through this unregistered offering, Defendants raised
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`billions of dollars’ worth of crypto assets, principally from U.S. retail investors.
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`2.
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`Both Defendants were integral to the operation and success of the Gemini Earn
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`program. Genesis was the issuer and entity that received, pooled, deployed, and paid interest on
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`investors’ assets. Genesis and Gemini marketed the Gemini Earn program through social media
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`and Gemini’s website, touting the high interest rates that investors could earn through Gemini
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`Earn. And Gemini provided retail investors with access to Genesis, which otherwise only
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`Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 2 of 22
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`engaged in crypto asset transactions with large institutional and other accredited investors.1
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`Crucially, both Defendants profited from the partnership and offering.
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`3.
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`To participate in the Gemini Earn program, Genesis and Gemini required that
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`investors enter into a tri-party Master Digital Asset Loan Agreement with Genesis and Gemini
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`(“Gemini Earn Agreement”), whereby Gemini Earn investors provided crypto assets to Genesis,
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`with Gemini acting as the agent in the issuance. Genesis would send interest payments to
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`Gemini, which would then deduct an “Agent Fee” before distributing the remainder of the
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`interest payments to Gemini Earn investors.
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`4.
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`Genesis pooled the crypto assets from Gemini Earn investors with assets from
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`other investors. Genesis then deployed the crypto assets – primarily by lending the crypto assets
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`to institutional counterparties (“Institutional Borrowers”) – in order to generate revenue for its
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`business, including the revenue necessary to pay interest to Gemini Earn investors. Genesis
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`earned revenue by lending the crypto assets at a higher rate than it paid to Gemini Earn and other
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`investors.
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`5.
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`The Genesis Earn Agreements, as offered and sold through the Gemini Earn
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`program, were securities that Genesis and Gemini offered and sold to the investing public.
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`6.
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`Defendants offered and sold the Gemini Earn Agreements through the Gemini
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`Earn Program without registering the offer and sale with the SEC as required by the federal
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`securities laws. As a result, investors lacked material information about the Gemini Earn
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`program that would have been relevant to their investment decisions. Instead of providing
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`investors with the full panoply of information required by the federal securities laws, Defendants
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`1 “Accredited investors” are those persons whose financial sophistication and ability to sustain the risk of
`loss of investment or fend for themselves render the protections of the Securities Act of 1933’s
`registration process unnecessary. See Rule 501(a) of the Securities Act of 1933 [17 C.F.R. § 230.501].
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`Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 3 of 22
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`have instead only made selective and inadequate disclosures.
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`7.
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`The U.S. retail investors who participated in the Gemini Earn program have
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`suffered significant harm. In November 2022, Genesis unilaterally announced that it would not
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`allow hundreds of thousands of retail investors to withdraw their crypto assets from Gemini Earn
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`because of “withdrawal requests which have exceeded our current liquidity” following volatility
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`in the crypto asset market. At the time, Genesis held approximately $900 million in investor
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`assets from approximately 340,000 Gemini Earn investors, most residing in the United States. As
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`of the date of this Complaint, these retail investors still cannot withdraw their assets, and Genesis
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`has formed a special committee to oversee a restructuring process.
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`8.
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`While the Gemini Earn program has been terminated, both Genesis and Gemini
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`continue to do business in the crypto asset industry. In particular, Genesis intends to reengage in
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`crypto asset lending activities. Gemini continues to hold billions of dollars’ worth of crypto
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`assets on behalf of retail investors in connection with its trading platform and other activity in
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`this industry. Thus, Defendants remain positioned to violate the registration provisions if they are
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`not enjoined from doing so.
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`VIOLATIONS
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`9.
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`By engaging in the conduct described in this Complaint, Defendants violated
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`Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)].
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`10.
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`Unless Defendants are permanently restrained and enjoined, they will continue to
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`engage in the acts, practices, and courses of business set forth in this Complaint and in acts,
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`practices, and courses of business of similar type and object.
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`NATURE OF THE PROCEEDING AND RELIEF SOUGHT
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`11.
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`The Commission brings this action pursuant to the authority conferred upon it by
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`Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)].
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`12.
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`The Commission seeks a final judgment: (a) permanently enjoining Defendants
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`from violating Sections 5(a) and 5(c) of the Securities Act, pursuant to Section 20(b) of the
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`Securities Act [15 U.S.C. § 77t(b)]; (b) ordering Defendants to disgorge their ill-gotten gains and
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`to pay prejudgment interest thereon, pursuant to Sections 21(d)(3), (d)(5), and (d)(7) of the
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`Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S. Code § 78u(d)(3), (5), (7)]; and (c)
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`imposing civil money penalties on Defendants pursuant to Section 20(d) of the Securities Act [15
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`U.S.C § 77t(d)].
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`JURISDICTION AND VENUE
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`13.
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`This Court has jurisdiction over this action pursuant to Section 22(a) of the
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`Securities Act [15 U.S.C. § 77v(a)].
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`14.
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`Defendants, directly or indirectly, have made use of the means or instruments of
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`transportation or communication in interstate commerce or of the mails in connection with the
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`transactions, acts, practices, and courses of business alleged herein.
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`15.
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`Venue is proper in the Southern District of New York pursuant to Section 22(a) of
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`the Securities Act [15 U.S.C. § 77v(a)]. Gemini’s principal place of business is in this District,
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`and Defendants sold the securities at issue in this case to investors residing in this District.
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`DEFENDANTS
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`16. Genesis Global Capital, LLC (“Genesis”) is a Delaware limited liability
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`company formed in 2017 and a wholly owned subsidiary of Genesis Global Holdco, LLC, which
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`is wholly owned by Digital Currency Group, Inc. (“DCG”). Genesis’ principal place of business
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`is in Jersey City, New Jersey. Genesis claims that it is the “premier institutional digital asset
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`financial services firm,”2 and “the world’s largest digital asset lender” and that “[h]olders of digital
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`currencies can earn yield on their assets by lending directly to Genesis, a regulated and trusted
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`counterparty.” Genesis is registered with FinCEN as a money services business (i.e., money
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`transmitter). Genesis is one of several companies that DCG operates under the “Genesis” brand.
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`Genesis is the issuer of securities under the Gemini Earn program.
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`17. Gemini Trust Company, LLC (“Gemini”) is a New York limited liability trust
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`company founded in 2014. Gemini is beneficially owned and controlled by Cameron and Tyler
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`Winklevoss through Winklevoss Capital Fund, LLC. Gemini’s principal place of business is in
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`New York, New York. Gemini is registered as a New York limited purpose trust company with
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`the New York State Department of Financial Services (“NYSDFS”).
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`STATUTORY AND REGULATORY FRAMEWORK
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`18.
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` The Securities Act sets forth a longstanding regime of full and fair disclosure in
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`connection with the offer and sale of securities, in contrast to traditional commercial principles
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`of caveat emptor. Congress mandated that persons who offer and sell securities to the investing
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`public provide sufficient, accurate information to allow investors to make informed decisions
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`before they invest.
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`19.
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`The definition of a “security” under the Securities Act includes a wide range of
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`investment vehicles, including “investment contracts” and “notes.” An investment contract is an
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`investment of money in a common enterprise with a reasonable expectation of profits derived
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`from the entrepreneurial or managerial efforts of others. Congress defined “security” broadly to
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`embody a “flexible rather than a static principle, one that is capable of adaptation to meet the
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`countless and variable schemes devised by those who seek the use of the money of others on the
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`2 A “digital asset” is another term for crypto asset.
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`promise of profits.” SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946). According to the
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`Supreme Court, the broad definition of “security” is “sufficient to encompass virtually any
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`instrument that might be sold as an investment,” because “Congress’ purpose in enacting the
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`securities laws was to regulate investments, in whatever form they are made and by whatever
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`name they are called.” SEC v. Edwards, 540 U.S. 389, 393 (2004) (citations and internal
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`quotation marks omitted) (emphasis in original). Courts have found that novel or unique
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`investment vehicles constitute investment contracts, including interests in orange groves, animal
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`breeding programs, railroads, mobile phones, and enterprises that exist only on the Internet,
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`including crypto assets.
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`20.
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`Sections 5(a) and 5(c) of the Securities Act require that an issuer like Genesis
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`register the offer or sale of securities with the SEC. Similarly, those provisions prohibit Gemini
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`from engaging in the offer and sale of such unregistered securities. Registration statements
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`relating to an offering of securities provide public investors with material information about the
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`issuer and the offering, including but not limited to financial and managerial information, how
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`the issuer will use offering proceeds, and the risks and trends that affect the enterprise and an
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`investment in its securities.
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`BACKGROUND ON CRYPTO ASSETS
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`21.
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`The term “crypto asset” generally refers to an asset that is issued and transferred
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`using distributed ledger or blockchain technology, including, but not limited to, so-called
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`“cryptocurrencies,” “coins,” and “tokens.”
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`22.
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`A blockchain or distributed ledger is a peer-to-peer database spread across a
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`network of computers that records all transactions in theoretically unchangeable, digitally
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`recorded data packages. The system relies on cryptographic techniques for secure recording of
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`transactions.
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`I.
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`Genesis and Gemini Offered and Sold Investments
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`FACTS
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`23.
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`In March 2018, Genesis began obtaining crypto assets from large institutional and
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`other accredited investors in exchange for a promise to pay interest on those investors’ crypto
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`assets. Genesis obtained crypto assets from its various investors for the use of its primary
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`business – i.e., to lend crypto assets to Institutional Borrowers for interest – which generated
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`revenue for Genesis and allowed it to pay interest to large institutional and other accredited
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`investors. Genesis earned profit by lending the crypto assets to Institutional Borrowers at a
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`higher rate than it paid to its investors. Genesis pooled the investors’ crypto assets and exercised
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`discretion over how to deploy the assets to earn income.
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`24.
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`Eventually, Genesis expanded its business model to transact with not just
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`institutional and accredited investors, but also retail investors. In particular, in December 2020,
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`Genesis entered into an agreement with Gemini to offer Gemini customers, including U.S. retail
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`investors, an opportunity to tender their crypto assets to Genesis in exchange for Genesis’
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`promise to pay interest.
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`Gemini Earn Program
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`25.
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`Specifically, beginning in February 2021, Genesis and Gemini began offering the
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`Gemini Earn program to retail investors in the United States and Hong Kong, and later
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`Singapore. There was no minimum investment amount to be eligible to participate in the Gemini
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`Earn program. As of November 16, 2022, approximately 340,000 retail investors, most residing
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`in the United States, had crypto assets invested with Genesis through the Gemini Earn program.
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`By November 2022, the value of retail investors’ crypto assets held by Gemini exceeded the
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`collective value of those tendered by institutional and accredited investors.
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`26.
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`Each Gemini Earn investor entered into a tri-party Gemini Earn Agreement with
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`Gemini and Genesis. The agreement was a standard agreement and not individually negotiated
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`with Gemini Earn investors. Under the terms of the Gemini Earn Agreement, Gemini Earn
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`investors first needed to hold eligible crypto assets with Gemini – either by transferring the
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`crypto assets to Gemini or acquiring them via Gemini’s crypto asset trading platform. Through
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`Gemini Earn, investors would then tender their crypto assets to Genesis, with Gemini acting as
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`the agent for retail investors to facilitate the transaction. Gemini aggregated the crypto assets to
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`be invested in the Gemini Earn program and placed them in a digital wallet from which Genesis
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`would take possession of the assets.
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`27.
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`Genesis determined the types and aggregate amount of each crypto asset that were
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`eligible to be invested by Gemini Earn investors. Genesis offered and agreed to pay the Gemini
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`Earn investors in-kind interest on the crypto assets they had invested, which accrued on a daily
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`basis. Genesis could unilaterally revise the interest rates and the aggregate amount of each crypto
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`asset that Gemini Earn investors could invest, on a monthly basis.
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`28.
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`Gemini Earn investors’ returns came from Genesis, with Gemini deducting an
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`Agent Fee from the returns. Genesis had sole discretion over the gross interest rate that it paid for
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`each crypto asset, while Gemini had sole discretion over its Agent Fee and thus the net rates of
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`return offered to Gemini Earn investors.
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`29.
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`Gemini published the list of crypto assets eligible for investment and the interest
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`rates offered to Gemini Earn investors on its website as well as in Gemini’s mobile application
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`(“app”). More than 50 crypto assets were eligible to be invested in the Gemini Earn program,
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`including Bitcoin, Ether, USD Coin, and Dogecoin.
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`30.
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`As of October 2022, the net interest rate offered to Gemini Earn investors ranged
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`from 0.45% to 8.05%, while Gemini’s Agent Fee ranged from 0.06% to 4.29%, depending on the
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`type of crypto asset tendered to Genesis. For the three months ended March 31, 2022, Gemini
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`received approximately $2.7 million in Agent Fees from the Gemini Earn program.
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`31.
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`The Gemini Earn Agreement provided that the crypto asset transactions were
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`“open term” unless otherwise specified, and Gemini Earn investors could terminate all, or a
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`portion, of their investment in Gemini Earn at any time with no withdrawal fee. Per the Gemini
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`Earn Agreement, Genesis was also obligated to return the invested crypto assets within three
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`business days of an investor’s request for repayment to a digital wallet controlled by Gemini, and
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`Gemini would then transfer the crypto assets and any accrued interest to the investor’s Gemini
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`account where the assets and interest would be available for withdrawal. The Gemini Earn
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`Agreement also provided that Genesis was responsible for repaying the crypto assets and all
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`accrued interest to the Gemini Earn investors.
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`32.
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`Under the terms of the Gemini Earn Agreement, a failure by Genesis to return
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`crypto assets or a failure by Genesis to pay interest or late fees to a Gemini Earn investor is
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`considered an event of default. In the event of a default, Gemini may declare the entire Gemini
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`Earn balance payable, transfer any collateral to hold on behalf of itself and the Gemini Earn
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`investors, and/or exercise all other rights and remedies available. If the event of default persists
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`for 30 days or more, Gemini may terminate the Gemini Earn Agreement.
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`Genesis and Gemini Promoted Gemini Earn as an Investment
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`33.
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`Genesis and Gemini both touted the profits investors could earn by investing their
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`crypto assets with Genesis through Gemini Earn. Genesis advertised on its public website that
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`“[h]olders of digital currencies can earn yield on their assets by lending directly to Genesis.”
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`Genesis also published tweets highlighting its partnership with Gemini and the yield that Gemini
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`Earn investors – i.e., retail investors – could earn. For example, on February 2, 2021, Genesis
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`published a tweet stating, “Genesis is dedicated to building and partnering to lower barriers to
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`digital asset markets.”
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`34.
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`Gemini similarly promoted the profit that investors could earn through the Gemini
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`Earn program. In a February 2021 press release launching Gemini Earn, Gemini CEO Tyler
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`Winklevoss stated, “We designed a program that allows our customers the ability to generate a
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`real return on their crypto holdings.” On February 27, 2021, Gemini also posted a video on
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`YouTube titled, “Invest Better with Gemini Earn.” On its website, Gemini described how users
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`would earn interest, noting, “We are excited to launch Gemini Earn and offer more opportunities
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`for you to grow your portfolio and earn yield.” Similarly, Gemini advertised on its website that
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`investors could “[p]ut your crypto to work. With Gemini Earn, you can receive up to 8.05% APY
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`on your cryptocurrency,” and listed the interest rate that investors could earn for each eligible
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`crypto asset. Gemini also published tweets, including on May 26, 2021, promoting the high
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`interest rates offered via Gemini Earn, with statements such as the following:
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`35.
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`Gemini itself repeatedly described Gemini Earn as an investment on its website.
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`For example, Gemini included this description in an FAQ entitled, “What are the risks of Gemini
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`Earn?”:
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`Cryptocurrency, like many assets, can be volatile and subject to price
`swings. There is always a risk in investing, and each customer needs to
`assess their own risk tolerance before making any investment decisions. Our
`partners in Gemini Earn have an obligation to return funds according to the
`terms of their loan agreement. However, Gemini Earn customers (the
`lenders) always assume some level of risk when they decide to lend their
`funds. We believe Gemini Earn gives our retail investors another way to
`stay long-term in the asset class and have the option to invest and earn
`interest, all on the Gemini platform.
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`(emphasis added)
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`36.
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`Gemini’s website also claimed that Gemini Earn investors could “receive more
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`than 100x the average national interest rate, among the highest rates on the market” and that
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`Gemini Earn “offer[s] more flexibility than other yield-generating cryptocurrency investments.”
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`37.
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`Additionally, Gemini’s website featured a calculator that would allow a user to
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`select a deposit amount, crypto asset type, and a time frame to see how much interest could be
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`earned by tendering crypto assets through Gemini Earn. The calculator would reveal the
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`projected amount of interest that could be earned by investing the investor’s crypto assets for a
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`period between one and four years.
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`Genesis’ Deployment of the Invested Gemini Earn Crypto Assets
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`38.
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`Genesis pooled on its balance sheet the crypto assets that it received from the
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`Gemini Earn investors and other investors, and in practice did not segregate the crypto assets it
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`received from different groups of investors. Genesis retained possession and control over the
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`investors’ crypto assets on its balance sheet, and determined how much to hold, lend out to
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`others, and otherwise use. Genesis exercised its discretion in how to use investors’ crypto assets
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`to generate revenue for its business and to pay the interest rates it promised Gemini Earn
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`investors and other investors. The Gemini Earn Agreement did not contain any explicit terms
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`restricting how investors’ crypto assets would be used by Genesis.
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`39.
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`Generally, Genesis deployed the Gemini Earn investors’ crypto assets by either
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`lending them to Institutional Borrowers or using the assets as collateral for Genesis’ own
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`borrowing. Crypto assets not loaned to Institutional Borrowers or used for collateral were held
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`by Genesis on its balance sheet in an effort to provide Genesis with liquidity to meet potential
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`demand for loans as well as to repay the investors in its crypto asset program, including Gemini
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`Earn. Genesis also had the ability to loan the crypto assets to related parties, including its parent
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`company.
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`40.
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`Genesis employed its discretion and judgment in determining the terms of
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`transactions with Institutional Borrowers. For example, Genesis conducted due diligence on the
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`Institutional Borrowers before entering into a transaction. Genesis negotiated an initial
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`agreement with each Institutional Borrower, and then individually negotiated the terms –
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`including the type of crypto assets to be lent, interest rate, duration of the loan, and collateral (if
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`any) – of every subsequent lending transaction. Genesis separately evaluated each Institutional
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`Borrower, as well as market conditions, when determining collateral rates.
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`41.
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`The returns earned by each Gemini Earn investor were reliant on the pooling of
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`the invested crypto assets and the ways in which Genesis deployed those assets, including
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`Genesis’ evaluation of the Institutional Borrowers, negotiation of favorable terms, and
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`management of market and counterparty risk. When Genesis loaned crypto assets it received
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`through the Gemini Earn program, the assets were transferred to the Institutional Borrowers and
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`left Genesis’ balance sheet. Ultimately, the returns of Gemini Earn investors were dependent on
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`Genesis’ managerial efforts and risk management in its lending activities.
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`42.
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`The interest income that Genesis received from lending crypto assets to
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`Institutional Borrowers was used to generate revenue for Genesis and to pay the promised
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`interest to Gemini Earn investors and other investors. Genesis did not have any other revenue-
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`generating activities. For example, for the three months ended March 31, 2022, Genesis received
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`approximately $169.8 million in interest income from Institutional Borrowers and paid $166.2
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`million in interest to the investors in its crypto asset program, including Gemini Earn.
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`43.
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`Genesis also loaned an additional $575 million worth of crypto assets, including
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`those of Gemini Earn investors, to related party DCG, which DCG used to fund investment
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`opportunities and repurchase DCG stock from non-employee shareholders in secondary
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`transactions.
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`II.
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`The Gemini Earn Program Constituted an Offer and Sale of Securities
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`A. The Gemini Earn Program Constituted an Offer and Sale of Securities Under
`Reves
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`44.
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`Under Section 2(a)(1) of the Securities Act, the definition of a security includes
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`any “note.” See 15 U.S.C. §§ 77b, 78c. A note is presumed to be a security unless it bears a
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`strong resemblance to instruments that are not securities, which courts determine by examining
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`four factors: (1) the motivation of the parties; (2) the plan of distribution; (3) the expectations of
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`the investing public; and (4) the availability of an alternative regulatory regime that “significantly
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`reduces the risk of the instrument” for investors other than the securities laws, “thereby rendering
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`application of the Securities Acts unnecessary.” See Reves v. Ernst & Young, 494 U.S. 56, 64–69
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`(1990). Under Reves, the Gemini Earn Agreements were notes and offered and sold through
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`Gemini Earn as securities.
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`1. The Purpose of the Gemini Earn Program
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`Genesis offered the Gemini Earn program to obtain crypto assets for the use of its
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`45.
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`business – namely, to run its institutional lending activities, generate profits for itself, and to pay
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`the interest promised to Genesis investors, and investors in Gemini Earn were primarily
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`interested in the profit they expected the program to generate.
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`46.
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`Genesis controlled the crypto assets it obtained from investors and had complete
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`discretion in determining how much to hold, lend and otherwise use. Genesis used the crypto
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`assets it raised from Gemini Earn investors and other investors to make loans to Institutional
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`Borrowers or as collateral for Genesis’ own borrowing. Genesis also had the discretion to hold
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`the assets on its balance sheet to provide Genesis with liquidity to meet potential demand for
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`loans as well as to repay the investors in its crypto asset program.
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`47.
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`In turn, investors participated in the Gemini Earn program primarily for profit,
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`i.e., to receive a return on their crypto assets. Genesis and Gemini both touted the profits
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`investors could earn by investing their crypto assets with Genesis, including by advertising
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`Gemini Earn as an investment and touting that investors could receive up to 8.05% annual
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`percentage yield (“APY”) on their crypto assets. Investors who purchased the Gemini Earn notes
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`were led to expect that by tendering and giving control over their crypto assets to Genesis, they
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`would receive profit in the form of interest on those assets.
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`48.
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`In short, Genesis intended to use the crypto assets for its business and its sole
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`source of revenue, and the Gemini Earn investors were primarily motivated to earn a profit on
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`their crypto assets in the form of interest.
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`2. The Gemini Earn Program was Offered and Sold to a Broad Segment of the
`Public
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`Genesis and Gemini publicly advertised the Gemini Earn Agreements, through
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`49.
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`Gemini Earn, on websites and on social media. Moreover, the Gemini Earn Agreements were
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`offered and sold to any U.S. investor, including retail investors. As of November 16, 2022, there
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`were approximately 340,000 retail investors, the majority of whom resided in the United States,
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`who had crypto assets invested with Genesis through the Gemini Earn program. The Gemini
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`Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 15 of 22
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`Earn Agreements were offered and sold to a broad segment of the general public.
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`3. The Investing Public Considered these Notes as Investments
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`Genesis and Gemini, through websites and social media, promoted Gemini Earn
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`50.
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`as an investment, specifically as a way to earn high “returns” or “yield” on investors’ crypto
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`assets. Gemini repeatedly described Gemini Earn as an investment on its own website and social
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`media and repeatedly touted that the Gemini Earn interest rates were “among the highest rates on
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`the market” and “higher than most existing options.” Gemini’s website further claimed that
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`Gemini Earn investors could “receive more than 100x the national interest rate.” Gemini’s
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`website also included a calculator that showed a user potentially how much interest they could
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`earn by investing their crypto assets in the Gemini Earn program for a period between one and
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`four years. The economic realities of the transaction, in which investors had an opportunity to
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`tender crypto assets with Genesis in exchange for earning interest with some of the “highest
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`rates” available for crypto assets, further underscore why the investing public considered the
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`Gemini Earn program to be an investment opportunity.
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`4. No Alternative Regulatory Regime or Risk-Reducing Factors Exist to Protect
`Gemini Earn Investors
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`No alternative regulatory scheme or risk-reducing factors existed to protect
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`51.
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`investors with respect to the Gemini Earn program. In its own FAQs, Genesis noted that
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`“[D]igital assets are not covered by SIPC insurance” and that “[e]stablishing a lending and
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`borrowing relationship with Genesis is not the same as opening a depository account or a savings
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`account” and that “[a]ccounts with Genesis do not enjoy FDIC protection.” Genesis Global
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`Trading, Inc., the SEC registered broker-dealer affiliated with Genesis, did not have a role in the
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`Gemini Earn program. Although Genesis has registered as a money services business (“MSB”)
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`with FinCEN, the anti-money laundering and recording keeping and reporting requirements of an
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`Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 16 of 22
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`MSB – designed to prevent money services business from being used to facilitate money
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`laundering and the financing of terrorist activities – do not provide the significant disclosures and
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`other investor protections afforded by the federal securities laws.
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`52.
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`Similarly, although Gemini is registered with NYSDFS as a New York limited
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`purpose trust company, NYSDFS did not have oversight over Genesis. Gemini publicly stated
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`that Gemini Earn does not operate like a traditional bank account, is not protected by a
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`governmental program, and is not backed by Gemini itself. In a February 2021 press release
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`launching Gemini Earn, Gemini stated that “Gemini Earn is not a depository account. . . . Loans
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`are not insured by Gemini or any governmental program or institution.” Likewise, on its website,
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`Gemini noted that “Gemini Earn is structured similarly to non-deposit services offered by
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`financial institutions and not insured by FDIC, SIPC, any other governmental program, or
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`Gemini.”
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`53.
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`Any capital reserve requirements applicable to Gemini did not apply to Genesis or
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`to the crypto assets tendered to Genesis through Gemini Earn.
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`54.
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`Under the terms of the Gemini Earn Agreement, Genesis was not required to post
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`collateral. Gemini told investors, “All lending by you through our Program will be on an
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`unsecured basis. We will not collect or hold collateral from Borrowers, nor maintain any
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`collateral account for your benefit.” Although Genesis later provided some collateral to Gemini
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`in August 2022, the collateral Genesis provided to Gemini was in the form of restricted shares
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`that could not be liquidated immediately and amounted to only a fraction of the total investor
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`assets held in Gemini Earn.
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`55.
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`As evidenced by the current state of Gemini Earn, where investors have been
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`unable to access their crypto assets or any form of collateral since November 16, 2022, any
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`Case 1:23-cv-00287-ER Document 1 Filed 01/12/23 Page 17 of 22
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`oversight of Genesis as an MSB and Gemini as a limited purpose trust company did not
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`adequately reduce the risk of significant harm to Gemini Earn retail investors.
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`B. The Gemini Earn Program Constituted the Offer and Sale of Investment
`Contracts under Howey
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`56.
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`The offer and sale of Gemini Earn Agreements through the Gemini Earn program
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`also constitutes the offer and sale of investment contracts under Howey.
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`1. Gemini Earn Involved the Investment of Money
`