The Securities and Exchange Commission on Thursday charged Genesis Global Capital and Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, for selling unregistered securities to investors through Gemini's Earn crypto asset lending program.

The SEC alleges the Gemini Earn program constituted an offer and sale of securities under SEC law, raising billions of dollars of crypto assets from hundreds of thousands of investors, and should have registered with the SEC.

"We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors," SEC Chair Gary Gensler said in a statement.

"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. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law."

According to the complaint, in December 2020, Genesis entered into an agreement with Gemini to offer Gemini customers the ability to loan their crypto assets to Genesis in exchange for interest payments.

Beginning in February 2021, Genesis and Gemini began offering the program to investors.

Gemini facilitated the transaction and deducted for itself an agent fee, sometimes as high as 4.29%, from the returns it received from Genesis, according to the SEC.

The SEC alleges Genesis then exercised its discretion in how to use investors' crypto assets to generate revenue and pay interest to investors.

Last November, Genesis, which is a wholly-owned subsidiary of Barry Silbert's Digital Currency Group (DCG), announced it would pause withdrawals on its lending platform as it lacked sufficient liquidity to meet requests amid volatility in the crypto market in the wake of FTX's collapse. At the time Genesis held approximately $900 million Gemini customer deposits, which remain frozen on the platform.

The SEC's announcement comes as Genesis and Gemini have been engaged in a war of words, with Cameron Winklevoss earlier this week calling for DCG CEO Barry Silbert to step down and accusing Silbert and others at DCG of making "false statements and misrepresentations to Gemini."

Investigations continue

“The recent collapse of crypto asset lending programs and the suspension of Genesis’ program underscore the critical need for platforms offering securities to retail investors to comply with the federal securities laws,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “As we’ve seen time and again, the failure to do so denies investors the basic information they need to make informed investment decisions.