US Securities Regulator Charges Genesis, Gemini with Unregistered Offerings (January 14, 2023 – January 20, 2023)

Reuters posted on CNN.com

CNN.com

Link to the article

Posted 01/12/2023

Key words and Definitions

Securities and Exchange Commission (SEC) – an independent agency of the U.S. federal government that is responsible for regulating securities markets and protecting investors.

Cryptocurrency – a digital currency or digital asset designed to be used over the internet that is not backed by a centralized bank or other legal authority.

Liquidity crunch – a financial situation where the institution or individual does not have immediate access to cash or assets that can be quickly converted to cash without significant loss of value .

Summary: Key Points in the Article.

Genesis Global Capital LLC and Gemini Trust Company LLC were formally charged by the U.S. Securities and Exchange Commission (SEC) for “illegally selling securities to hundreds of thousands of investors through their crypto lending program.” Gemini customers were given the opportunity to loan crypto assets to Genesis and earn interest. However, the SEC maintains this agreement was a violation of securities laws.

Gemini CEO and co-founder Tyler Winklevoss issued a statement saying the charges were disappointing and the Gemini “looks forward to defending itself.” He also stated the SEC’s allegations were counterproductive and did nothing to help investors get their money back. Genesis prevented investors from withdrawing funds in November 2022 due to a liquidity crunch. As of January 2015, Gemini customers still have not been able to withdraw their roughly $900 million in crypto assets.  

Thinking Critically Questions:

  1. How did Genesis and Gemini violate SEC laws?
  2. What is a liquidity crunch, and how did a liquidity crunch impact the Gemini investors?
  3. What will be the likely outcome of these charges?

Multiple Choice Questions

  1.  Which of the following financial assets has the highest risk?

a. Tesla stock

b. Walmart bonds

c. Bitcoin

d. S&P 500 index fund

     2. Which of the following financial assets are crypto assets?

a. Bitcoin

b. Ethereum

c. Dogecoin

d. all of these

3.  The Securities and Exchange Commission is charged with regulating the financial markets to protect investors from fraud

      a. true

      b. false