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According to the SEC’s complaint, since at least January 2023, Consensys has offered and sold tens of thousands of unregistered securities on behalf of liquid staking program providers Lido and Rocket Pool, who create and issue liquid staking tokens (called stETH and rETH) in exchange for staked assets. While staked tokens are generally locked up and cannot be traded or used while they are staked, liquid staking tokens, as the name implies, can be bought and sold freely. Investors in these staking programs provided funds to Lido and Rocket Pool in exchange for the liquid tokens. The SEC’s complaint alleges that Consensys engages in the unregistered offer and sale of securities by participating in the distribution of the staking programs and operates as an unregistered broker with respect to these transactions.

“By allegedly collecting hundreds of millions of dollars in fees as an unregistered broker and engaging in the unregistered offer and sale of tens of thousands of securities, Consensys inserted itself squarely into the U.S. securities markets while depriving investors of the protections afforded by the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As this enforcement action shows, we continue to hold noncompliant actors in this space accountable, as we do across the securities market.”

The SEC further alleges that, since at least October 2020, Consensys has brokered transactions in crypto asset securities by, for example, soliciting investors to trade crypto asset securities, providing pricing and other investment information regarding crypto asset securities, purporting to provide investors with the “best” quote, accepting and routing customer orders, facilitating order execution, handling customer assets, and receiving transaction-based compensation.

The SEC’s complaint, filed in federal district court in the Eastern District of New York, charges Consensys with violating the registration provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and seeks injunctive relief and penalties.

The SEC’s investigation was conducted by Daphna Waxman, Amy Mayer, and Abigail Cooper and supervised by Mark R. Sylvester, Kristin Pauley, and Jorge G. Tenreiro, all of the SEC’s Crypto Assets and Cyber Unit. The SEC’s litigation will be led by Samuel Wasserman under the supervision of Jack Kaufman and Mr. Tenreiro.

“We charged Genesis with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors,” said SEC Chair Gary Gensler. “Today’s settlement builds 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.”

“The collapse of the Gemini Earn program underscores the unknown risks that investors are exposed to when market participants fail to comply with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As this enforcement action makes clear, no amount of hype and advertising can substitute for the investor-protection disclosures required by the federal securities laws.”

The SEC charged Genesis ⊗ and Gemini Trust Company, LLC (“Gemini”) on January 12, 2023. According to the SEC’s complaint, the Gemini Earn program was a purported investment opportunity where Gemini customers, including retail investors in the United States, loaned their crypto assets to Genesis in exchange for Genesis’ promise to pay interest earned from Genesis’ use of the loaned crypto assets. The complaint alleges that, in November 2022, Genesis announced that it would not allow the Gemini Earn investors to withdraw their crypto assets because Genesis lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market. At the time, Genesis held approximately $900 million in crypto assets from 340,000 Gemini Earn investors.

Genesis and two affiliates filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York on January 19, 2023. Investors have been unable to access or withdraw the crypto assets they invested with Genesis via Gemini Earn.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charged Genesis and Gemini with violating Sections 5(a) and 5(c) of the Securities Act of 1933. In addition to the civil penalty referenced above, Genesis, without admitting or denying the allegations in the SEC’s complaint, consented to the entry of a final judgment permanently enjoining Genesis from violating Section 5 of the Securities Act.

The SEC’s investigation was conducted by Jonathan Austin and Ashley Sprague and supervised by Deborah Tarasevich and Stacy Bogert. The litigation in the bankruptcy court was conducted by Therese Scheuer and William Uptegrove and supervised by Alistaire Bambach. The ongoing district court litigation against Gemini is being led by Edward Reilly and Laura Meehan and supervised by James Connor and Olivia Choe.