Investors in the cryptocurrency space should be aware of the potential risks.
In the wake of the FTX bankruptcy in November 2022, other firms in the crypto market have been caught up in the same turbulence. The two major companies who have been swept into this legal quagmire are the Winklevoss twins’ crypto exchange Gemini and Genesis.
According to the Wall Street Journal, Genesis had an outstanding loan of $175 million that it was unable to pay back. This loan was acquired through Alameda Research, the sister brokerage firm of FTX. The inability to repay the loan caused Genesis to suspend customer withdrawals.
The SEC has taken this opportunity to target crypto companies in light of the FTX fallout.
After uncovering the details behind Genesis and Gemini, the SEC sued both companies for $900 million in connection with a cryptocurrency lending program.
The program was quite straightforward for consumers; they could loan out their digital assets to the exchange and also have the peace of mind of having their cryptocurrency stored by Gemini. This system was comparable to a traditional savings account, where investors could earn up to 8% interest.
The SEC is now attempting to reclaim any funds that were earned through this lending program and also impose fines.
Tyler Winklevoss, the co-founder of Gemini, has responded to the SEC’s move by tweeting, “We look forward to fighting this bogus claim. Moreover, we will make sure that this does not detract from our focus on the recovery process.”
The SEC is also involved in a protracted legal battle with RippleLabs concerning the alleged unregistered sale of XRP tokens. This is added to the charges against Samuel Bankman-Fried for supposedly deceiving FTX shareholders.