Gemini, a prominent cryptocurrency exchange, and Genesis Global Capital, a bankrupt cryptocurrency lender, are currently facing an SEC lawsuit related to their joint venture project, Gemini Earn. In a recent turn of events, the companies submitted a petition to dismiss the case, claiming that these products do not fall under the category of securities requiring registration.
According to court documents, both Gemini and Genesis contend that the transactions involved in Gemini Earn effectively amount to loans. The firms aim to have the lawsuit dismissed or the SEC’s requests for disgorgement and permanent injunction overturned. Gemini took a firm stance against the case, describing it as “ill-conceived” and emphasizing that they, not Genesis, were responsible for the customer-facing aspects of the Earn program.
The SEC lawsuit and subsequent Genesis bankruptcy filing in January have had significant repercussions for the Gemini Earn program and its users. Mid-November 2022 saw withdrawal rights for Earn users restricted, prompting Gemini to submit a claim to recover approximately $1.1 billion in assets on behalf of its 232,000 users.
As part of the ongoing efforts to establish a reorganization and settlement agreement, the parent company of both Gemini and Genesis, Digital Currency Group (DCG), is currently in negotiations with a mediator. Additionally, Gemini has joined forces with other creditors to develop an “amended plan of reorganization” aimed at achieving the best possible outcome for Earn users. However, the lack of a finalized preliminary agreement from February remains a concern.
Gemini’s legal representative, Jack Baughman, has expressed criticism towards the SEC’s case, arguing it has made compensation for Earn users more troublesome and the recovery of assets from Genesis bankruptcy even more difficult. Gemini also stressed that the lending arrangements between Gemini Earn and Genesis Global Capital did not involve a secondary market, further strengthening their claim that these were not securities.
The controversy surrounding the SEC lawsuit against Gemini and Genesis began with the SEC’s crackdown on the cryptocurrency industry, initiating a domino effect that continues to impact the market. SEC Chair Gary Gensler, previously rumored to have sought a role at Binance, emphasized the significance of complying with securities laws and the need to protect investors. Nevertheless, the bankruptcy of Genesis’s lending arm and its parent company missing a $630 million payment have only complicated the matter.
In challenging the SEC’s allegations, Gemini co-founder Tyler Winklevoss referred to the lawsuit as a “manufactured parking ticket” and expressed confidence in his company’s ability to defend itself. The court’s decision on the motion to dismiss is expected to play a critical role in defining the future course of the legal proceedings and potential outcomes for Earn users.
Source: Cryptonews
