Dismissal of SEC lawsuit against Gemini’s Earn product

The cryptocurrency exchange, Gemini, and the bankrupt crypto lender, Genesis Global Capital, have jointly filed for the dismissal of a Securities and Exchange Commission (SEC) lawsuit. The lawsuit alleges that “Gemini Earn” violated securities regulations by offering unregistered securities, allowing customers to lend crypto assets such as Bitcoin (BTC) to Genesis, with Gemini taking a fee as high as 4.29%.

The companies argue that Gemini Earn should not be classified as a security and that the transactions were essentially loans. Genesis has requested the court to dismiss the complaint or, alternatively, strike the SEC’s requests for a permanent injunction and disgorgement.

Additionally, Gemini, not Genesis, was responsible for the customer-facing aspects of the Earn program. Gemini criticized the SEC lawsuit as “ill-conceived” in a blog update addressed to Earn users.

After the SEC’s lawsuit in January, Genesis subsequently filed for bankruptcy, leading to Earn users facing withdrawal restrictions since mid-November 2022. In response, Gemini filed a comprehensive claim on Monday, May 22, aiming to recover over $1.1 billion in assets for 232,000 Earn users.

Gemini and Genesis’s parent company, the Digital Currency Group (DCG), are currently in mediated negotiations to develop a restructuring and settlement agreement. Gemini and other creditors are collaborating on an “amended plan of reorganization” that can be pursued independently if the mediation process fails. The objective is to ensure the optimal outcome for Earn users, as stated by the exchange in its blog post.

Jack Baughman, a founding partner of JFB Legal, which represents Gemini, said that the SEC’s case is only making it harder and more complicated to retrieve assets from the Genesis bankruptcy to make Earn users whole. A related article discusses blockchain’s efforts to get mandamus for SEC response to rulemaking petition.

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