(Bloomberg) -- US regulators sued crypto brokerages Genesis Global Capital and Gemini Trust Co. for breaking securities rules. 

The Securities and Exchange Commission said on Thursday that the firms illegally raised billions of dollars from hundreds of thousands of investors through the so-called Gemini Earn program. That product, which let customers loan out their assets in exchange for interest payments, amounted to the offering of unregistered securities, the SEC said. 

Gemini launched Earn in February of 2021, with the idea of offering users passive returns on their coins in exchange for the right to lend the tokens out. By August of that year, the program, which offered rates that far exceeded those on traditional bank accounts, crossed $3 billion in assets. 

Customers haven’t been able to pull money from Earn accounts since mid-November and Cameron Winklevoss, who co-founded Gemini, recently accused Barry Silbert, the founder of Genesis parent Digital Currency Group Inc. of stalling efforts to resolve the issue. Silbert has denied the claim. 

Regulators have been scrutinizing the Earn product for at least a year. 

In a series of tweets on Thursday, Gemini’s other co-founder, Tyler Winklevoss, said the firm would defend itself against the SEC’s case, which he said amounted to a “manufactured parking ticket.” He said Gemini had been in talks with the SEC for 17 months about Earn and the regulator didn’t raise an enforcement action until Genesis paused withdrawals from the program. 

Genesis didn’t immediately respond to requests for comment.

“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. Doing so best protects investors,” SEC Chair Gary Gensler, who has regularly argued that many crypto firms are selling products that should be registered with the agency, said in a statement. The regulator said related investigations remain ongoing. 

While Earn’s terms of service warned customers that they could lose all their money, the program benefited from the widespread view among customers that the exchange took a conservative approach to risk.

Crypto lending products have been at the epicenter of the fallout from the turmoil that plagued the market in 2022.

Genesis Global Capital was hit particularly hard by crypto exchange FTX’s sudden and spectacular collapse in November and halted customer withdrawals and new loan originations. The freeze remains in place.  

The SEC filed its case in the US District Court for the Southern District of New York and is seeking penalties, injunctive relief and return of ill-gotten gains to investors. 

Separately, the SEC and federal prosecutors in Brooklyn are scrutinizing the internal financial dealings of DCG, the parent company of Genesis.

The case is Securities and Exchange Commission v Gemini Trust Co., 23-cv-287, US District Court, Southern District of New York. 

--With assistance from Olga Kharif, Vildana Hajric and Chris Dolmetsch.

(Updates with Tyler Winklevoss comments in sixth paragraph.)

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