SEC Lawsuit Progresses Against Gemini and Genesis Over Earn Program

A recent ruling by a New York federal judge has allowed the Securities and Exchange Commission’s (SEC) lawsuit against Gemini and Genesis to proceed, as the court found the allegations of securities law violations “plausible.” The lawsuit revolves around the Gemini Earn program, with the SEC arguing that it constituted an offering of unregistered securities to retail investors.

In a 32-page order issued on March 13, Judge Edgardo Ramos dismissed motions by Gemini and Genesis to dismiss the SEC’s lawsuit. The judge’s decision was based on the SEC’s claims that Gemini Earn, a crypto yield-bearing product offered by Gemini and managed by Genesis, met the requirements of an investment contract under the Howey test, a legal framework used to classify securities. The court found that Genesis pooled assets on its balance sheet and lent funds to institutional borrowers, with customers’ expectation of profits dependent on Genesis’ efforts.

Gemini Earn, which was launched in February 2021, attracted approximately 340,000 retail users and had $900 million in assets under management by November 2022. However, withdrawals were halted due to liquidity issues, leading to frustration among customers.

Despite the ruling allowing the lawsuit to proceed, it does not guarantee a favorable outcome for the SEC. Both parties will now proceed with gathering evidence, and the regulator will need to prove its case in court.

Genesis, the parent company of Gemini Earn, filed for bankruptcy following the SEC’s lawsuit in January 2023. In February of the same year, 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.

The ruling by Judge Ramos underscores the challenges faced by crypto firms operating in the regulatory landscape. Interest-bearing crypto accounts, like Gemini Earn, have attracted scrutiny from securities regulators, highlighting the need for clarity and compliance within the industry.

Gemini and Genesis had sought to dismiss the SEC’s lawsuit, arguing that the assets involved were not securities. However, the court found that the SEC’s allegations were plausible, paving the way for further legal proceedings.