April 19, 2024
SEC's Lawsuit Against Gemini, Genesis Proceeds
Latest Cryptocurrency News

SEC’s Lawsuit Against Gemini, Genesis Proceeds

A federal judge has ruled that the United States Securities and Exchange Commission’s accusation against crypto firms Gemini and Genesis, alleging the sale of unregistered securities through the Gemini Earn program, is credible enough to proceed in court. In a 32-page order issued on March 13, New York District Court Judge Edgardo Ramos dismissed Gemini and Genesis’ motions to dismiss the SEC’s lawsuit.

Additionally, the judge denied a separate request to halt the SEC’s demand ordering the cessation of securities sales and for the entities to surrender Gemini Earn profits should the SEC prevail in the lawsuit. Judge Ramos stated that 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, offered and sold unregistered securities.

He noted that the SEC adequately argued Gemini Earn met the requirements of an investment contract under the Howey test, a legal framework used to classify securities.

Highlighted excerpt from Judge Ramos’ order noting the “plausible inference” that Gemini Earn was an investment contract under U.S. law. Source: CourtListener

According to Judge Ramos, Genesis “pooled [assets] on its balance sheet” instead of segregating them and lent the funds to institutional borrowers “relying on its discretion and judgment.” Furthermore, customers’ “expectation of profits was dependent on Genesis’ efforts,” he added. The SEC’s assertions that Gemini Earn agreements were notes, which are debt securities obligating loan repayments with interest, also stood, as per the order.

“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 does not guarantee a ruling in favor of the SEC. The regulator still needs to substantiate its case, and all parties will proceed with evidence gathering.

Genesis recently disclosed in a bankruptcy court filing that it reached a settlement with the SEC for $21 million. In November 2022, Gemini Earn boasted approximately 340,000 customers and $900 million in assets under management, as per the SEC’s lawsuit.

During the same period, FTX declared bankruptcy, and Genesis opted to “temporarily suspend” Gemini Earn withdrawals, citing “unprecedented market turmoil” and liquidity challenges. Following the SEC’s suit in January of the previous year, Genesis filed for bankruptcy. In February, Gemini consented to return $1.1 billion to Gemini Earn customers through Genesis’ bankruptcy proceedings, as part of a settlement with New York’s financial regulator.

Image by Sergei Tokmakov, Esq. https://Terms.Law from Pixabay

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