Gemini and Genesis Seek Dismissal of SEC Lawsuit Over Earn Program
The U.S. Securities and Exchange Commission (SEC) has launched a complaint against the Earn program of crypto exchange Gemini. In response, Gemini and defunct digital asset lender Genesis Global Capital have filed a move to dismiss the case.
The Earn product was a cryptocurrency asset lending service, not the sale of unregistered securities, Gemini and Genesis said in a document filed in the United States District Court for the Southern District of New York on Friday, May 26.
The SEC charged Gemini and Genesis in a January complaint with offering unregistered securities to retail investors in the United States via the Gemini Earn program. Launched in December 2020, the program ended this year as Genesis froze withdrawals and ran out of cash to continue paying interest to Gemini’s customers as the cryptocurrency market plunged.
Securities Rules Does Not Apply Claim
Since Genesis filed for Chapter 11 bankruptcy protection in January, the future of the hundreds of thousands of Gemini investors who are owed over $900 million by the company is uncertain. The SEC claimed that Gemini and Genesis violated federal securities laws by not disclosing material information to its investors.
Furthermore, the defendants maintained that the Master Digital Asset Loan Agreement (MDALA) for Gemini Earn was not an investment agreement.
Moreover, there was never any intent to sell or offer the Agreement for sale; there was no need to lend or borrow money; there was no transfer of title to any Assets; and the Agreement could not be exchanged on any secondary market.
It was asserted by Gemini and Genesis that the Securities Act’s Section 5, which mandates the sale or offer to sell a security, did not apply to the MDALA since it was a business arrangement. To enable the SEC to go on with the lawsuit, the crypto companies said, would be to disregard the “plain meaning” of the Securities Act.