Stoltmann Law Offices is a Chicago-based securities, investment fraud, and class action law firm offering representation to defrauded investors and victims of fraud nationwide on a contingency fee basis. We have been contacted by investors who loaned money to Genesis through the Gemini Earn Program. These investors, in return for a fixed rate of interest, varying between 0.45% and 8.05% APY depending on the type of digital asset tendered, loaned digital assets to Genesis based on the premise that the investor can “redeem their crypto at any time.”
Each Gemini Program Investor Should File Individual Claims Against Gemini
The Gemini Earn program started on February 2, 2021, and effectively crashed on November 16, 2022, when Gemini halted the Gemini Earn Program, pausing withdrawals from lender/investors as a result of being unable to redeem funds entrusted to Genesis, though the lending partnership with Gemini. That same day, the Gemini/earn website was redirected to a blog post titled “An Important Message Regarding Gemini Earn.” Gemini removed all marketing for the Earn product and all links to Gemini Earn were removed. As of today, it is estimated that the Gemini Earn investors are owed roughly $900 million.
The SEC & Gemini Earn Program
Yesterday, the United States Securities and Exchange Commission filed a civil complaint against Gemini Trust Company and Genesis Global Capital, alleging that the companies engaged in a massive, unregistered securities offering in connection with the Gemini Earn program. By way of background, before a security can be sold to the public, it must be registered with the Securities and Exchange Commission in some way. This can take the form of filing what’s called an S-1 Registration Statement. Or, if the offering is limited and only being offered to accredited investors, then the issuer of the security must file a Form-D seeking exempt status for a specified reason. According to the SEC, the Gemini Earn program was broadly marketed and solicited to everyone, and over 300,000 investors ended up depositing funds through the program. As such, there is no way Gemini Earn would qualify as a limited, exempt, offering.
When a company like Gemini offers securities, it has to be registered and regulated as a Securities Broker/Dealer. This too is extremely important. Not only has the SEC alleged that the Gemini Earn program was an “unregistered securities” offering, it also means that Gemini was acting as an unregistered broker/dealer. The remedy for securities law violations is two-part. First, and most relevant to Gemini Earn investors, is called “rescission”. This means the transaction is reversed by operation of law. Investors get their money back, plus interest and attorney’s fees, Gemini gets its contract back and is free to go hunt down the money to repay itself. If Gemini and Genesis are able to actually refund some of this money, and there is a spread between what is returned and what is owed, then the claim would be for compensatory damages.
The significance of the SEC’s allegations is difficult to understate. By alleging, pretty convincingly, that the Gemini Earn loan account, was a security, it opens Gemini and Genesis to the strictures of federal securities laws. These laws are premised on full and fair disclosure of all material facts in connection with the offering. The disclosure of material facts also means that full and fair risk disclosures be provided to investors in the Earn program. Some of the risks and material facts that would be required for disclosure are the details behind the counter-party lending arrangements Genesis engaged in with Gemini Earn investor money.
What Is Control Person Liability?
Facts specific to Genesis’s loan portfolio, its credit risk, and the identification and explanation of stop-loss and other rip-cord type protections in place to protect Gemini Earn clients from exactly what happened here, would be required disclosures. Even more importantly, and this concerns the Winklevoss Twins, the securities laws include what is called “control person liability.” What this means is, if the company violates the securities laws, then the people or entities that control the company, are deemed to have committed the same violations as a matter of law. Defending a control person liability claim is difficult because it shifts the burden on the control person to prove that he or she did not know of, and could not know of, the alleged securities law violations. There is some cover there in very specific cases. But here, the Winklevoss Twins aggressively marketed Gemini Earn on social media for years which is clear evidence they were well aware of the program and what it was doing. Being ignorant of securities registration requirements is not a defense.
When Does Liability End?
The trouble for Gemini and Genesis does not end with the federal securities laws. If the SEC says something is a security under Federal law, it also means that investment is almost certainly a security under State Securities laws. The key difference between state securities laws and federal securities laws is that the state versions are typically far more consumer-friendly with longer statutes of limitations and no requirement to prove “scienter” or fraudulent intent. What this means is, even a negligent violation of the Illinois Securities Law, for example, creates liability, whereas under the federal regime, you must prove scienter – fraudulent intent – which can be difficult to do.
If I Am A Victim Of Securities Fraud Who Do I Speak To?
If you are a Gemini Earn investor and your assets have been frozen by Gemini, you have legal rights to pursue. According to documents signed by investors, Gemini requires arbitration of all disputes, which means you’d likely be wasting your time by suing Gemini in court to recover your lost funds. Stoltmann Law Offices regularly represents clients in arbitration forums across the United States. We are a contingency fee law firm which means we do not get paid until you do!