Gemini and Bankrupt Lender Genesis Seek Dismissal of SEC Lawsuit Over Earn Program

Gemini, a cryptocurrency exchange platform, and Genesis Global Capital, a bankrupt crypto lender, have jointly filed a motion to dismiss a lawsuit brought by the U.S. Securities and Exchange Commission (SEC). The SEC had accused the two entities of selling unregistered securities through Gemini’s Earn program. However, Gemini and Genesis have contested the allegations, arguing that the lawsuit lacks legal and factual basis. Court filings from Friday shed light on their arguments.

The SEC’s lawsuit, filed in January in a New York court, targeted Gemini’s yield-bearing product, Earn, which the regulator claimed was an unregistered offering that enabled the entities to amass billions of dollars worth of crypto assets from hundreds of thousands of investors. The SEC alleged that Genesis utilized investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors.

Gemini responded to the SEC’s claims by stating that the Earn program did not require any lending or borrowing and emphasized that no party could transfer or assign it without the consent of all involved parties. They argued that subsequent transactions between the borrower and lender were optional and not mandated by the program itself.

Furthermore, Gemini challenged the SEC’s classification of the Master Digital Asset Loan Agreement (MDALA) contract, involving Genesis, Gemini, and Earn users, as an unregistered security. Gemini contended that the SEC’s characterization lacked legal and factual support, asserting that the SEC had failed to provide sufficient evidence that the MDALA was sold to anyone or that any party had offered to sell it.

According to the original SEC complaint, Genesis held approximately $900 million in assets belonging to around 340,000 Gemini Earn investors when it froze withdrawals from the platform in November, shortly before filing for bankruptcy protection. The SEC Chair, Gary Gensler, had previously commented on the case, stating that Genesis and Gemini had offered unregistered securities to the public, bypassing investor protection disclosure requirements. In response, Tyler Winklevoss, co-founder of Gemini, criticized the lawsuit, dismissing it as a “manufactured parking ticket.”

Gemini and Genesis have now submitted their motion to dismiss the SEC lawsuit, arguing that the SEC failed to adequately demonstrate that the MDALA constituted security and neglected to provide substantial evidence of the alleged sale of the MDALA to anyone. They contend that the SEC’s claims lack merit and do not satisfy the legal standards required for a lawsuit of this nature.

The outcome of the motion to dismiss will determine whether the lawsuit against Gemini and Genesis proceeds further or is denied. The case highlights the ongoing regulatory challenges faced by cryptocurrency platforms and the need for clarity regarding the classification of digital assets and associated offerings under existing securities laws.

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments. This is a news article only. 

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