Bankrupt Crypto Lender Genesis Settles SEC’s Earn Lawsuit

Genesis Global Holdco LLC has struck a deal with US regulators to end a civil lawsuit that accused the bankrupt crypto lender of breaking securities rules through its now terminated Gemini Earn program.

Genesis, a subsidiary of Barry Silbert’s Digital Currency Group Inc., agreed to pay a $21 million civil penalty to the US Securities and Exchange Commission to end the lawsuit. But it will only have to pay the penalty if the company is able to fully repay its customers and other creditors in Chapter 11, according to papers filed Wednesday in New York bankruptcy court.

The agreement, which must be approved by a bankruptcy judge, resolves allegations that Genesis illegally raised money from investors through its Gemini Earn program, which it ran jointly with Gemini Trust Co. The joint venture allowed customers to collect interest payments by loaning their digital assets, which the SEC alleged amounted to an offering of unregistered securities.

Genesis and Gemini have denied wrongdoing and argued that the Earn program wasn’t a security. The program has since been terminated, according to court documents.

The settlement comes weeks before Genesis will seek bankruptcy court approval on its debt repayment plan.

Genesis said in court papers that the settlement will save cash by averting further litigation with the SEC. Continuing to defend against the lawsuit would also be a significant distraction for Genesis and its advisers as it tries to return as much cash as possible to creditors and win court approval of its debt-repayment plan, the company said.

Genesis filed Chapter 11 in January 2023 following several other large crypto firms into bankruptcy.

The bankruptcy is Genesis Global Holdco, LLC, 23-10063, US Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporter on this story:
Jonathan Randles in New York at jrandles5@bloomberg.net

To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net

Michael B. Marois

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