The Securities and Exchange Commission on Thursday charged crypto firms Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.

Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which touted yields of up to 8% for customers.

According to the SEC, Genesis loaned Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users. Genesis should have registered that product as a securities offering, SEC officials said in a complaint filed in Manhattan federal court.

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“Today’s charges build 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,” SEC chair Gary Gensler said in a statement.

Gemini’s Earn program, supported by Genesis’ lending activities, met the SEC’s definition by including both an investment contract and a note, SEC officials said. Those two features are part of how the SEC assesses whether an offering is a security.

The SEC says the Earn program netted the companies billions of dollars in crypto assets. The agency is seeking permanent injunctive relief, disgorgement, and civil penalties against both Genesis and Gemini, and noted that “investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”

The two firms have been engaged in a high-profile battle over $900 million in customer assets that Gemini entrusted to Genesis as part of the Earn program, which was shuttered this week. Genesis suspended withdrawals after the failure of FTX in November caused a rush for the exits across the crypto universe, and the firm has yet to allow Earn customers to pull their funds.

“The U.S. retail investors who participated in the Gemini Earn program have suffered significant harm,” the SEC complaint read. More than 340,000 investors have been affected by the freeze.

In the first three months of 2022, Gemini made around $2.7 million in agent fees off Earn, the SEC complaint alleges. Genesis would use Gemini users’ assets for institutional lending or as “collateral for Genesis’ own borrowing,” the agency said.

Over the same period, Genesis paid out $166.2 million in interest to clients, including Gemini, on $169.8 million of interest income, the SEC said.

Genesis’ institutional borrowers included Three Arrows Capital and Sam Bankman-Fried’s Alameda Research, both now bankrupt.

Representatives from Gemini and Genesis parent Digital Currency Group declined to comment.

Gemini, which was founded in 2015 by bitcoin advocates Cameron and Tyler Winklevoss, has an extensive exchange business that, while beleaguered, could possibly weather an enforcement action.

In a tweet, Cameron Winklevoss said Gemini is “working hard to recover funds” and called the SEC’s action “totally counterproductive.”

But Genesis’ future is more uncertain, because the business is heavily focused on lending out customer crypto and has already engaged restructuring advisers. The crypto lender is part of DCG, the conglomerate controlled by Barry Silbert.

SEC officials said the possibility of a DCG or Genesis bankruptcy had no bearing on deciding whether to pursue a charge.

It’s the latest in a series of recent crypto enforcement actions led by Gensler after the collapse of FTX, Bankman-Fried’s crypto exchange, late last year. Gensler was roundly criticized on social media and by lawmakers for the SEC’s failure to impose safeguards on the nascent crypto industry.

Gensler’s SEC and the Commodity Futures Trading Commission, chaired by Rostin Benham, are the two regulators that oversee crypto activity in the U.S. Both agencies filed complaints against Bankman-Fried, but the SEC has, of late, ramped up the pace and the scope of enforcement actions.

The SEC brought a similar action against now bankrupt crypto lender BlockFi and settled last year. Earlier this month, Coinbase settled with New York state regulators over historically inadequate know-your-customer protocols.

Since Bankman-Fried was indicted on federal fraud charges in December, the SEC has filed five crypto-related enforcement actions.

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