The securities watchdog continues its offensive against the cryptocurrency ecosystem
The US Securities and Exchange Commission (SEC) alleges that the Gemini and Genesis cryptocurrency firms sold unregistered securities via the Gemini Earn program. A federal judge has agreed, allowing the securities watchdog’s lawsuit against the companies to move forward.
New York District Court Judge Edgardo Ramos struck down motions from Gemini and Genesis to dismiss the SEC lawsuit in the 32-page order handed down on March 13. He also rejected a separate request asking the court to terminate the SEC’s demand for them to refrain from selling securities and provide Gemini Earn profits to the SEC if the regulator wins the lawsuit.
Judge Ramos ruled the SEC suit “plausibly alleges” that the Gemini Earn crypto yield-bearing product from Gemini and managed by Genesis sold unregistered securities. He also concluded that the SEC adequately alleged Gemini Earn fulfilled the requirements of an investment contract based on the Howey test, a legal framework that classifies securities.
Genesis “pooled [assets] on its balance sheet” instead of separating them, later lending the funds to institutional borrowers “relying on its discretion and judgment,” and consumers’ “expectation of profits was dependent on Genesis’ efforts,” the Judge added.
“At this stage, under both tests, the court finds that the complaint plausibly alleges that defendants offered and sold unregistered securities through the Gemini Earn program.” However, the order doesn’t indicate a ruling in favor of the SEC, which still has to prove its case. in court.
Genesis submitted a bankruptcy court filing last month stating that it had reached an agreement with the SEC to settle the case for $21 million.
The company filed for bankruptcy after the SEC filed its suit in January 2023. In February, Gemini agreed to repay $1.1 billion to Gemini Earn customers through bankruptcy proceedings in a compromise with financial regulators in New York.
