A federal judge has ruled that the United States Securities and Exchange Commission’s (SEC) allegations against crypto firms Gemini and Genesis regarding the sale of unregistered securities through the Gemini Earn program are plausible enough to proceed in court.
In a 32-page order issued on March 13, New York District Court Judge Edgardo Ramos rejected motions by Gemini and Genesis to dismiss the SEC’s lawsuit. The judge also denied a separate request to halt the SEC’s order to cease selling securities and for Gemini and Genesis to surrender Gemini Earn profits if the SEC prevails.
Judge Ramos stated that the SEC’s January 2023 lawsuit “plausibly alleges” that Gemini Earn, a crypto yield-bearing product offered by Gemini and managed by Genesis, sold unregistered securities. The SEC sufficiently argued that Gemini Earn met the criteria of an investment contract under the Howey test, a legal framework used to classify securities.
Genesis pooled assets on its balance sheet rather than segregating them and lent funds to institutional borrowers based on its discretion, according to the judge. Customers’ expectation of profits was dependent on Genesis’ efforts, further supporting the SEC’s allegations.
The SEC’s claim that Gemini Earn agreements were notes, a debt security obligating loan repayments with interest, also held up according to the order.
While the ruling does not guarantee a favorable outcome for the SEC, it allows the lawsuit to proceed, with both parties proceeding to gather evidence.
Genesis reached a $21 million settlement deal with the SEC in a bankruptcy court filing last month. Gemini Earn had approximately 340,000 customers and $900 million in assets under management in November 2022, according to the SEC’s lawsuit.
Genesis filed for bankruptcy following the SEC’s lawsuit in January last year. In February, Gemini agreed to return $1.1 billion to Gemini Earn customers through Genesis bankruptcy proceedings as part of a settlement with New York’s financial regulator.
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