Gemini and Genesis Seek Dismissal of SEC Lawsuit on Earn Product

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Key takeaways:

  • Gemini and Genesis have requested a judge throw out an SEC complaint involving their Earn product.
  • The product is not a security, according to Gemini’s legal representative.

According to recent developments, Gemini and Genesis have requested a judge throw out an SEC complaint involving their Earn product.

The U.S. Securities and Exchange Commission (SEC) filed a lawsuit on Friday, May 26, stating that the earn product amounted to the marketing of unregistered securities. Crypto exchange Gemini and bankrupt lender Genesis submitted a motion to dismiss the action. An attorney for Gemini, Jack Baughman, wrote:

“The SEC claims that the contract setting up the Earn program was itself a security. Even if that were right … the SEC would then have to show that the contract was sold. That never happened.”

The Earn product was made available by Gemini in collaboration with Genesis Global Capital. Due to the providers’ reinvestment of such funds, consumers were able to earn interest on their cryptocurrency deposits. According to Gemini, its Earn program, which pays consumers rewards for lending out coins, is not a security. 

Genesis also noted in the most recent filing that all of these transactions effectively constituted loans. Thus, it pleaded with the court to throw out the case or, as an alternative, to overturn the SEC’s demands for a permanent injunction and disgorgement.

In the filing, Gemini stated that this offer “was nothing more than a lending arrangement.” Despite the fact that the corporation brought up several issues, its primary defense centered on the fact that the contracts weren’t offered on a secondary market. As a result, it said, the lending contracts it entered into do not qualify as securities. The court was urged to “dismiss the complaint with prejudice.”

The SEC claims in its lawsuit that Gemini, rather than Genesis, “ran the customer-facing operations of the Earn program.” The cryptocurrency exchange, however, referred to itself as nothing more than the Earn product’s transfer agent and referred to the SEC case as “ill-conceived.”

Gemini and Digital Currency Group (DCG) have been negotiating to come to a restructuring and settlement agreement while searching for common ground. DCG failed to pay Genesis a $630 million loan earlier this month. Gemini has warned that the parent company, DCG, may be at default risk.

DCG is closing TradeBlock, one of its subsidiaries. In the midst of the continued decline in the cryptocurrency market, TradeBlock, which offers trading services to institutional investors, is being shut down. The trading platform will stop operating on May 31.

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