In a significant development that underscores the growing scrutiny on cryptocurrency operations, the U.S. Securities and Exchange Commission's (SEC) legal battle against crypto giants Gemini and Genesis takes a new turn. A federal judge has found the allegations of unregistered securities sales through the Gemini Earn program substantial enough to warrant further court proceedings.
A Closer Look at the Court's Decision
On March 13, Judge Edgardo Ramos of the New York District Court delivered a pivotal ruling, dismissing motions by Gemini and Genesis to terminate the SEC's lawsuit against them. This decision roots in the judge's determination that the Gemini Earn program, managed by Genesis and offered by Gemini, potentially involves the offering and sale of unregistered securities. This finding aligns with the SEC's stance, suggesting that the program meets the criteria of an investment contract under the renowned Howey test, a decisive legal benchmark for identifying securities.
The court's analysis highlighted Genesis's management of pooled assets and its reliance on its discretion and efforts, which directly influenced customers' profit expectations. Additionally, the SEC's assertion that the Gemini Earn agreements qualify as notes, which imply a commitment to repay loans with interest, stood firm in Judge Ramos's order.
The Implications of the Court's Ruling
It's important to note that while the court's current stance does not guarantee a victory for the SEC, it paves the way for a more detailed examination of the case's merits. The parties involved will now engage in evidence collection, moving closer to a resolution.
This lawsuit emerges amidst a backdrop of increasing regulatory focus on cryptocurrency and its compliance with securities law. Notably, Genesis's announcement last month of a $21 million settlement with the SEC over this suit marks a significant development in the legal saga.
The SEC's initial lawsuit sheds light on the substantial scale of the Gemini Earn program, which boasted approximately 340,000 customers and $900 million in assets under management. However, the collapse of FTX and ensuing market volatility led to the suspension of withdrawals from Gemini Earn, precipitating a series of financial and legal challenges for Genesis and Gemini.
In a noteworthy move towards customer restitution, Gemini agreed in February to return $1.1 billion to Gemini Earn customers through the bankruptcy proceedings of Genesis, following a settlement with New York's financial regulator.
