Gemini, Genesis Seek Dismissal of SEC Lawsuit

On Friday, May 26, 2023, crypto exchange Gemini and bankrupt crypto lender Genesis Global Capital jointly filed a motion to dismiss a lawsuit filed by the US Securities and Exchange Commission (SEC) against their “Earn” product, a service that enables users to earn interest on their cryptocurrency deposits.

In January this year, the SEC charged Gemini and Genesis for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. The program promised to pay interest to investors who loaned their crypto assets to Genesis, but Genesis failed to return the assets when the market crashed. Gemini terminated the program but investors have not been able to withdraw their crypto assets. The SEC’s complaint alleges that the Gemini Earn program constitutes an offer and sale of securities under applicable law and should have been registered with the Commission.

The company’s motion to dismiss brief argues that Gemini Earn was not a securities offering. Genesis maintained that the transactions amounted to loans and asked the court to dismiss the case or, alternatively, to overturn the SEC’s demands for a disgorgement and permanent injunction.

In the SEC lawsuit, it was claimed that Gemini, not Genesis, was in charge of the Earn program’s customer-facing components. In a blog update directed to Earn users, Gemini, which acknowledged its function as a transfer agent for Earn, slammed the SEC case as “ill-conceived.”

After Genesis filed for bankruptcy in response to the SEC’s complaint in January, withdrawal rights for Earn users have been restricted starting mid-November 2022. Gemini responded by submitting a thorough claim on May 22 with the goal of recovering nearly $1.1 billion in assets for 232,000 Earn members.

Gemini and Digital Currency Group (DCG), Genesis’s parent company, have been negotiating to come to a restructuring and settlement agreement while searching for a middle ground. DCG failed to make a $630 million loan payment to Genesis earlier this month. Gemini has warned that the parent group DCG could be at risk of defaulting.

A copy of the original filing can be found here.