On Friday, May 26, crypto exchange Gemini and bankrupt lender Genesis filed to dismiss a lawsuit by the U.S. Securities and Exchange Commission (SEC) alleging that their Earn product amounts to offering unregistered securities. Gemini argued that its Earn product, which offered yields to customers to lend out coins, was not a security. In the filing, Genesis also stated that all these transactions were effectively loans. Consequently, they requested the court to dismiss the complaint or “in the alternative, strike the SEC’s requests for a permanent injunction and disgorgement.”
The SEC’s complaint contends that Gemini, rather than Genesis, “ran the customer-facing operations of the Earn program.” However, the crypto exchange claimed that it was merely a transfer agent for the Earn product and called the SEC lawsuit “ill-conceived.”
This legal battle started earlier this year in January 2023 when the SEC sued both companies just before crypto lender Genesis filed for bankruptcy. The situation worsened after the collapse of crypto exchange FTX, which led to Earn users being unable to withdraw their money since November 2022.
As Gemini’s Earn users continue to face difficulties, the exchange has escalated its battle with Genesis’ parent Digital Currency Group (DCG). On Monday of the same week, Gemini filed a master claim seeking the return of over $1.1 billion in assets to 232,000 Earn users. Both Gemini and DCG have been trying to find a middle ground, negotiating a restructuring and settlement agreement.
Earlier this month, DCG missed a loan payment of $630 million to Genesis, which prompted Gemini to warn that the parent group could be at risk of defaulting. This conflict between the two companies adds to the uncertainty that the crypto industry is already experiencing on the regulatory front.
Interestingly, these events are unfolding as Gemini plans to establish a base in the United Kingdom amid the growing regulatory uncertainty in their home country of the US. This move highlights the pressure that crypto exchanges are facing to navigate the regulatory landscape while trying to ensure their customers’ investments and satisfaction. And at the same time, it fuels the debate about how much regulation is needed and whether current regulatory approaches are adequately addressing the unique characteristics of the rapidly evolving cryptocurrency sector.
Source: Coingape
