SEC and Gemini signal a truce—at least on paper
The Securities and Exchange Commission and Gemini Trust Company have agreed to a “resolution in principle” to end a high-profile lawsuit over the exchange’s interest-earning product, a case that has hung over the crypto industry since early 2023. The move doesn’t close the book yet—formal terms still need to be written up and approved by a judge—but it’s the first real sign that a long, bruising fight may be nearing an endpoint.
At the center is Gemini Earn, a program that let customers lend their crypto in exchange for yield. Gemini, founded by Cameron and Tyler Winklevoss in 2014, acted as the front door and matched user deposits with Genesis Global Capital, the big institutional borrower on the other side. It worked until it didn’t. In November 2022, as the FTX collapse set off industry-wide stress, Genesis halted withdrawals. Gemini suspended Earn the same month, and tens of thousands of customers were left in limbo.
Two months later, in January 2023, the SEC sued. The agency argued the Earn setup amounted to an unregistered securities offering and said investors weren’t given the disclosures they would normally get with a registered product. That’s been the SEC’s playbook for yield and staking programs: if it looks like a security—whether framed as a note, a lending agreement, or an investment contract—it should be registered, or it shouldn’t be sold to retail investors.
The new “resolution in principle” suggests both sides have agreed on core terms: financial penalties for Gemini and likely some compliance commitments going forward. Exact figures weren’t disclosed. Because this is a federal case, the court will need to see and approve the final settlement. Until that happens, nothing is final.
Even with a deal, this doesn’t automatically get money back to Earn customers. Penalties in SEC settlements typically go to the government or into a fair fund if the agency sets one up. Customer recoveries are more directly tied to Genesis’s separate bankruptcy process and any settlements in that court. Those paths run alongside the SEC action but aren’t the same thing.
How we got here—and what it means for everyone else
Gemini Earn launched during the last bull cycle, when double-digit yields were common across crypto lending platforms. The offer was simple on the surface: deposit crypto, earn a posted rate, and withdraw when you want. Under the hood, Genesis borrowed the assets and ran an institutional lending book. As liquidity dried up in late 2022, that model snapped. When Genesis froze withdrawals, the money spigot for Earn users closed too.
The SEC’s case has been watched closely because it overlaps with several other enforcement actions that reshaped crypto finance in the U.S. BlockFi settled with the SEC and state regulators for $100 million in 2022 and ended its yield product. Kraken paid $30 million in 2023 to settle SEC charges over its U.S. staking service and shut that product down domestically. Coinbase is fighting a broader SEC suit that, among other things, challenges aspects of its staking program. The pattern is clear: the regulator wants yield-bearing and staking services registered or off-limits to retail investors.
Why does this matter beyond Gemini? Because the legal questions are bigger than one platform. When a company takes customer assets, pools them, and offers a return, the SEC tends to view it through the lens of long-standing securities tests. The agency has argued that investors need audited financials, risk factors, and ongoing reporting—the kind of transparency that comes with registration—before they hand over assets for promised yield. Crypto firms have countered that many of these services are more like brokerage or lending, not securities. Courts are slowly sorting that out.
There’s also a business-model lesson here. Counterparty risk is everything. Gemini depended on Genesis to make Earn work. When Genesis faltered, the entire product fell apart. Banks and brokers are used to writing for that risk and carrying regulatory capital. Crypto platforms, built for speed and a global market, often operated without those buffers. The fallout from 2022—FTX, Three Arrows Capital, Celsius, Voyager, and the Genesis freeze—pushed that point home.
Here’s the short timeline if you lost track:
- 2014: Gemini is founded by the Winklevoss twins.
- 2021: Earn rolls out during the market boom, offering yields on customer crypto.
- November 2022: Genesis suspends withdrawals; Gemini pauses Earn redemptions.
- January 2023: The SEC sues Gemini and Genesis over the Earn program.
- 2023–2024: Litigation grinds on while Genesis proceeds through bankruptcy court.
- Now: The SEC and Gemini announce a resolution in principle; final details pending court approval.
One more thread to watch: New York’s attorney general sued Gemini, Genesis, and Digital Currency Group in 2023, accusing them of misleading investors about the risks in the Earn program. That case follows its own track. Even if the federal SEC suit gets resolved, state-level actions can continue, and so can bankruptcy battles over who gets paid what and when.
So what changes if this deal gets signed? Regulators will point to it as another precedent that yield programs aimed at retail users should be registered. Crypto companies will likely keep geofencing U.S. customers from interest-bearing products or redesigning them for accredited investors and institutions. You may see more disclosures, more third-party audits, and tighter collateral management in any products that survive.
For Earn customers waiting to be made whole, the practical focus stays on bankruptcy court. Distributions there depend on how the judge values claims, what assets are available, and the timing of liquidations. Penalties paid to the government don’t usually backfill customer losses unless a special fund is set up, and even then, it can take time.
If you’re a retail investor, the takeaway is simple: any offer promising yield on your crypto carries multiple layers of risk—market risk, counterparty risk, and legal risk. If the provider needs a regulator’s green light and doesn’t have it, that legal risk can become the most painful one. If you’re a platform operator, the message is just as clear: register where needed, don’t outsource all your risk to a single borrower, and assume your product will be stress-tested in a crisis.
This deal in principle won’t end the SEC’s broader crypto push. The agency has several active cases and has shown it’s willing to use enforcement instead of waiting for Congress to pass a comprehensive crypto law. Until lawmakers set a detailed framework, each new settlement and court ruling becomes a breadcrumb for how the rules work in practice.
What to watch next: the size of any penalty; whether Gemini accepts ongoing compliance undertakings; how the court times the approval; and, separate from the SEC, whether there’s progress in bankruptcy court on returning assets to Earn users. Those are the milestones that will tell customers—and the rest of the industry—what life after this case actually looks like.
