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Gemini and Bankrupt Crypto Lender Genesis Seek Dismissal of SEC Lawsuit

Crypto lender Genesis Global Capital and crypto exchange Gemini have filed a joint motion to dismiss the lawsuit filed 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, alleging a violation of securities regulations. By seeking dismissal, Genesis Global Capital and Gemini aim to challenge the SEC's claims and defend against the allegations made regarding the sale of unregistered securities.


According to a document submitted as part of their motion to dismiss the lawsuit on May 26th at the United States District Court for the Southern District of New York, both Gemini and Genesis Global Capital strongly argued that the U.S. Securities and Exchange Commission (SEC) lacks legal grounds to characterize the Earn product as the sale of unregistered securities.


They maintained that the Earn program is a crypto asset lending service, challenging the SEC's claim and asserting that the allegations are unfounded.


This stems from a lawsuit filed in January to a New York court, in which the U.S. Securities and Exchange Commission (SEC) specifically targeted Gemini's yield-bearing product called Earn. The SEC accused the two entities of conducting an unregistered offering through the ‘Earn’ program, allegedly raising billions of dollars' worth of crypto assets from hundreds of thousands of investors.


We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said at the time.


Gemini’s ‘Earn’ program, which was introduced in December 2020, came to an end earlier this year when Genesis Global Capital, facing a lack of liquid assets resulting from the crypto market's decline, ceased withdrawals and could no longer fulfill interest payments to Gemini's clients.As a consequence, the fate of the investors who are owed more than $900 million by Genesis remains uncertain, especially since Genesis filed for Chapter 11 bankruptcy protection in January.


The U.S. Securities and Exchange Commission (SEC) accused Gemini and Genesis of disregarding disclosure obligations designed to safeguard investors and of contravening federal securities laws.


Genesis and Gemini have since countered the U.S. Securities and Exchange Commission's (SEC) allegations by asserting that the classification of the Master Digital Asset Loan Agreement (MDALA) contract as an unregistered security lacks legal or factual foundation, challenging the SEC's basis for considering the MDALA contract as a violation of securities regulations.

“Notwithstanding the unambiguous nature of the MDALA, and the limitations on how it could be used, the SEC seeks to turn the Earn program into something it was not: the sale of unregistered securities. While the SEC suggests that application of the federal securities laws is obvious here, the Complaint is a novel attempt to expand their scope beyond any reasonable reading of the relevant statutory language,” Gemini and Genesis said.

In their motion to dismiss, Genesis and Gemini argued that the SEC had failed to provide sufficient evidence to establish that the Master Digital Asset Loan Agreement (MDALA) was a security. They contended that the SEC's allegations lacked specificity regarding the sale of MDALA and failed to present non-conclusory allegations of any party offering to sell it.


The outcome of the court’s decision on the motion to dismiss will have a significant impact on the future course of the SEC's case against Genesis and Gemini concerning the alleged sale of unregistered securities, and could ultimately determine whether the case proceeds to trial or is dismissed altogether.

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