A federal judge has ruled that the United States Securities and Exchange Commission’s (SEC) allegation against crypto firms Gemini and Genesis, accusing them of selling unregistered securities through the Gemini Earn program, is plausible enough to proceed in court. In a 32-page order on March 13, Judge Edgardo Ramos of the New York District Court rejected Gemini and Genesis’ motions to dismiss the SEC’s lawsuit. The judge also denied a separate request to halt the SEC’s order for the firms to stop selling securities and to hand over Gemini Earn profits if the SEC wins the case.
According to Judge Ramos, the SEC’s suit, filed in January 2023, “plausibly alleges” that Gemini Earn, a crypto yield-bearing product offered by Gemini and managed by Genesis, sold unregistered securities. The judge stated that the SEC adequately demonstrated that Gemini Earn met the requirements of an investment contract under the Howey test, a legal framework used to classify securities. Judge Ramos also highlighted that Genesis pooled assets on its balance sheet and lent funds to institutional borrowers based on its discretion and judgment, while customers’ expectation of profits depended on Genesis’ efforts.
The order also supported the SEC’s claim that Gemini Earn agreements were notes, which are debt securities requiring loan repayments with interest. However, the judge’s ruling does not guarantee a victory for the SEC; the regulator still needs to prove its case, and all parties will proceed with gathering evidence.
In a related development, Genesis recently announced a settlement with the SEC for $21 million in a bankruptcy court filing. Last November, Gemini Earn had approximately 340,000 customers and $900 million in assets under management, according to the SEC’s suit. Genesis temporarily suspended Gemini Earn withdrawals in November 2022, citing unprecedented market turmoil and liquidity issues, after FTX collapsed into bankruptcy. Genesis filed for bankruptcy following the SEC’s suit in January last year, and in February, Gemini agreed to return $1.1 billion to Gemini Earn customers as part of a settlement with New York’s financial regulator.
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