As the newest scandal in the cryptocurrency field continues to unravel, the former chief of the Enforcement Department at the United States Securities and Commission Exchange (SEC) is mystified as to why it took so long for the regulator to initiate action against crypto exchange Gemini and crypto investment firm Genesis.
Indeed, the former SEC enforcement chief Lisa Braganca is perplexed by the fact that the agency had been investigating Gemini’s crypto-lending product for a long time yet allowed the suspicious operation to continue, as she told CNBC’s ‘Squawk Box’ host Andrew Sorkin in an interview streamed on January 13.
SEC knew about Gemini Earn ‘for a long time’
According to Braganca:
“SEC has known about this product for a long time. Based on a tweet from Tyler Winklevoss of Gemini, we know that Gemini had been under investigation for this product for some time, more than a year, and yet the SEC allowed this to continue for that period of time.”
As she further explained, the SEC’s inaction amid talks with Gemini continued even as the crypto crash happened in November and Gemini stopped paying its customers, and “two more months went by,” until a Gemini answer in a separate case – a class action against Gemini for failure to continue payments under the Gemini Earn product – initiated action.
“The SEC has been clear for years that something like this Earn program is a security, so it’s puzzling why they didn’t come to a resolution of this a long time ago, months and months ago.”
Plenty of blame to go around
Braganca believes “there’s a lot of blame to go around,” starting with Barry Silbert, the CEO of Genesis’s parent company Digital Currency Group (DCG), but also the Winklevoss twins, who relied on Silbert’s assurance of Genesis’s solvency without doing their due diligence.
“Basically, Genesis has been operating in a non-solvent way since around June 2022.”
In her words, they had a responsibility to their clients, especially “when you’re dealing with these sums of money, and it’s customer money, I would think the Winklevoss twins had a little bit more obligation to dig deeper to see what’s really going on.”
As a reminder, the SEC has charged both the crypto trading platform Gemini and DCG’s subsidiary crypto lender Genesis for “the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program,” which allowed both firms to raise billions of dollars worth of crypto assets.
At the same time, Cameron Winklevoss has publicly accused Genesis and DCG of orchestrating an alleged fraud against the crypto exchange’s users by misrepresenting Genesis’s true financial position to Gemini, leading to the loss of funds for about 340,000 customers, as Finbold reported.