- A US District Judge denied Genesis’s bid to dismiss the SEC’s lawsuit.
- Judge Ramos found the SEC’s complaint plausible.
- Genesis could end up paying substantial fines to the SEC once it makes its users whole.
Genesis’ legal tussles with US regulators and authorities continue to unfold, marking its second year with no resolution in sight. At the heart of the crypto lender’s conflict lies its financial product, Gemini Earn, which promised to ‘put your crypto to work.’
Despite Genesis’ claims that it operated within existing securities laws, a US judge has ruled otherwise, allowing the SEC’s case to survive.
Genesis Fails in Bid to Dismiss SEC Lawsuit
In a Wednesday court filing, a US District judge denied crypto lender Genesis’ motion to dismiss the US SEC’s case against its subsidiary and crypto exchange Gemini.
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Judge Edgardo Ramos found that the commission’s complaint ‘plausibly alleges’ that the two firms violated securities laws by allegedly offering and selling unregistered securities to retail investors through the now-defunct Gemini Earn program.
Backing his decision, Judge Ramos cited the Howey Test and Reves Test, the SEC’s go-to standard for determining whether an asset falls under securities laws, to deny Genesis’ motion.
"The complaint sufficiently alleges that Gemini Earn investors had an expectation of profits," Judge Ramos said on Wednesday. "Defendants marketed Gemini Earn as an investment opportunity and publicly touted investors’ ability to earn returns."
Genesis and Gemini sought to dismiss the SEC’s lawsuit in May 2023, labeling the suit as a ‘manufactured parking ticket’ and arguing that Gemini Earn focused on loans, not securities.
The SEC’s Year-Long Battle With Genesis
The SEC initially charged Genesis and Gemini in January 2023 for the unregistered offer and sale of securities to retail investors through Gemini Earn. Launched by the Winklevoss twins-led company in 2021, Gemini Earn offered as much as 8% interest on crypto tokens invested through the program.
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According to the SEC’s complaint, Gemini Earn boasted approximately 340,000 retail users and $900 million in assets on its platform when Genesis halted withdrawals in November 2022, citing liquidity issues.
Against the backdrop of an escalating public dispute between the two firms’ leadership, made worse by the FTX fiasco, Gemini Earn shut down on January 10, 2023.
Only recently, Gemini announced plans to offer 100% restitution in kind to users of its failed Earn product, pending the approval of the bankruptcy court overseeing the Genesis case.
On the Flipside
- While Gemini’s co-founders promise to return 100% of Gemini Earn customers’ funds, FTX users, on the other hand, would receive around 90% of distributable value worldwide by Q2 2024.
- Genesis is slated to pay the SEC a $21 million fine from remaining bankruptcy funds to resolve the regulator’s lawsuit.
- Genesis recently agreed to a settlement deal with the NY AG office.
Why This Matters
The SEC’s case against Genesis holds significant implications for the crypto industry and its regulation. The case outcome could set a precedent for how regulatory bodies like the SEC oversee similar products such as Gemini Earn.
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