A Federal Judge Rules in Favor of SEC: Lawsuit Against Gemini and Genesis Continues
A federal judge has made a ruling in the case of the US Securities and Exchange Commission (SEC) versus cryptocurrency firms Gemini and Genesis. The judge’s decision allows the SEC’s lawsuit, which alleges the sale of unregistered securities through the Gemini Earn program, to proceed in court. This ruling comes after Gemini and Genesis attempted to have the lawsuit dismissed.
The Judge Rejects Motions to Dismiss
New York District Court Judge Edgardo Ramos issued a 32-page order on March 13, denying the motions to dismiss filed by Gemini and Genesis. The judge stated that the SEC’s allegations were plausible enough to continue with the legal proceedings.
Additionally, the judge denied a separate request by the companies to halt the SEC’s demand for them to cease selling securities and hand over Gemini Earn profits if the SEC wins the lawsuit.
SEC’s Lawsuit is Deemed Plausible
Judge Ramos acknowledged that the SEC’s lawsuit, filed in January 2023, “plausibly alleges” that the Gemini Earn program involved the sale of unregistered securities. The judge noted that the SEC had provided sufficient evidence to establish that Gemini Earn met the criteria of an investment contract under the Howey test, a legal framework used to classify securities.
The judge highlighted several key points:
- Genesis pooled assets on its balance sheet instead of segregating them.
- Genesis lent funds to institutional borrowers based on its own discretion and judgment.
- Customers’ expectation of profits was dependent on Genesis’ efforts.
The judge also upheld the SEC’s claim that the Gemini Earn agreements constituted notes, which are debt securities obligating loan repayments with interest.
However, it is important to note that the judge’s decision does not indicate a ruling in favor of the SEC. The regulator still needs to provide evidence to support its case, and both sides will proceed with the collection of evidence.
Genesis Reaches Settlement with the SEC
In a bankruptcy court filing last month, Genesis announced that it had reached a settlement agreement with the SEC. Genesis agreed to pay $21 million to resolve the lawsuit.
In November 2022, Gemini Earn had approximately 340,000 customers and $900 million in assets under management. Following FTX’s bankruptcy in the same month, Genesis temporarily suspended Gemini Earn withdrawals due to “unprecedented market turmoil” and liquidity issues.
Genesis filed for bankruptcy after the SEC’s lawsuit was filed in January of the previous year. In February, Gemini agreed to return $1.1 billion to Gemini Earn customers through the Genesis bankruptcy proceeding as part of a settlement with New York’s financial regulator.
The SEC’s String of Lawsuits Against Crypto Firms
Over the past year, the SEC has filed numerous lawsuits against cryptocurrency firms. SEC Chair Gary Gensler has consistently asserted that most cryptocurrencies should be classified as securities. Some notable cases include:
- A civil case against Sam Bankman-Fried, co-founder of FTX.
- Lawsuits against Binance, its CEO Changpeng Zhao, and Coinbase.
Hot Take: The SEC Continues Its Crackdown on Crypto Firms
The federal judge’s ruling allows the SEC’s lawsuit against Gemini and Genesis to proceed in court. This decision further demonstrates the SEC’s ongoing efforts to regulate and enforce securities laws within the cryptocurrency industry. As more lawsuits are filed and settlements reached, the landscape of crypto regulations continues to evolve.
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