The mission of the Securities and Exchange Commission is to protect investors, but, in the case of crypto, the agency’s chairman has a funny way of going about that. This was on display again on Thursday when chairman Gary Gensler announced the Winklevoss twins’ firm Gemini had violated securities laws with their Earn product, which paid interest to customers who deposited currency like Bitcoin and Ethereum.
The announcement was classic Gensler. It came in the form of a Twitter video that showed an animated mashup of cars and safety belts while a smirking Gensler boasted about his agency’s latest scalp in the crypto sector. The video felt less like a serious enforcement action than it did a cheap spectacle—the brand of performative politics popularized by hacks in Congress like Matt Gaetz and Lauren Boebert.
The Winklevoss twins are understandably annoyed. On Twitter, Tyler Winklevoss complained that Gensler had shared the SEC's legal complaint with the media before serving it on Gemini—a type of discourtesy frowned upon by serious lawyers, which is likely explained by the fact Gensler himself is not an attorney. The SEC's behavior was particularly shabby given that Gemini has been in talks with the agency for over a year and has been operating under the supervision of New York State's powerful financial regulator.
Gensler's latest performance is also ironic in light of the fact that it comes months after the Earn program ran into trouble due to solvency issues at Gemini's partner, Genesis (which was also charged in the SEC suit). As one shrewd Twitter observer remarked, "[The] hindsight is very SEC Madoff like. They're supposed to prevent these situations not revel in the PR."
This is hardly the first time, of course, that Gensler's agency failed to stave off a crypto crack-up. The SEC missed the Luna/Terra debacle last spring that helped wipe $1 trillion from the crypto markets, and, more notoriously, was oblivious to Sam Bankman-Fried's massive fraud at FTX. Indeed, Gensler not only missed that scandal but was in talks with the company to bring it under the U.S. regulatory umbrella.
The worst part of Gensler's latest stunt, though, is that will hurt the more than 300,000 Earn investors whose funds are now frozen. In the last few weeks, Gemini and Genesis's parent company have been in a bitter spat over how to make these customers whole as Genesis tries to find new financing. Now, the SEC's legal complaint is likely to make that process impossible—and reduce whatever amount Earn customers had hoped to recover.
This isn't to say Genesis and the Winklevoss twins are blameless in the Earn affair. It was rash of the companies to offer a crypto interest product when the legal grounds for doing so were uncertain, and it's a credit to rival Coinbase that the company held off on its plans to launch an interest-bearing product of its own. But if the SEC believed Earn was operating illegally, the time to go after it was a year ago. Gensler's decision this week to use Gemini's current troubles as a promotional stunt will accomplish nothing other than hurting Earn's investors.
A quick programming note: The newsletter resumes on Tuesday after Fortune observes Martin Luther King Day.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
