Federal Judge rules SEC lawsuit against Gemini and Genesis to proceed

Federal Judge rules SEC lawsuit against Gemini and Genesis to proceed


Share link:


  • A New York federal judge has allowed the SEC’s lawsuit against crypto firms Gemini and Genesis to proceed, rejecting their motions to dismiss allegations of selling unregistered securities through the Gemini Earn program.
  • The SEC claims Gemini Earn constituted an investment contract under the Howey test, with Genesis pooling customer assets for loans to institutional borrowers, tying customers’ profit expectations to Genesis’ managerial efforts.
  • Following legal challenges, Genesis agreed to a $21 million settlement with the SEC, and Gemini committed to returning $1.1 billion to Gemini Earn customers amid its bankruptcy proceedings.

A federal judge in New York, Edgardo Ramos, has dismissed motions by crypto firms Gemini and Genesis to terminate a lawsuit filed by the United States Securities and Exchange Commission (SEC), allowing the case to move forward. 

The court’s decision, detailed in a 32-page order from March 13, stems from allegations that the Gemini Earn program offered and sold unregistered securities.

The SEC’s lawsuit, initiated in January 2023, argues that Gemini Earn, a product designed to generate yield on crypto assets, constitutes an investment contract under the Howey test, a legal standard used to determine if an arrangement qualifies as a security. 

According to the SEC, Genesis did not segregate customer assets but instead pooled them on its balance sheet, lending them to institutional borrowers at its discretion. This setup led to customers’ profit expectations being tied to Genesis’ efforts, further supporting the SEC’s stance that the Gemini Earn agreements are akin to notes, necessitating loan repayments with interest.

Despite the court’s decision to let the SEC’s lawsuit proceed, it does not equate to a judgment in favor of the regulator. The parties involved will continue with evidence gathering as the legal process unfolds.

In the lead-up to the lawsuit, Genesis had reached a settlement with the SEC in a bankruptcy court filing last month, agreeing to a $21 million fine. The lawsuit also highlighted that in November 2022, Gemini Earn had around 340,000 customers and managed $900 million in assets. That same month, the collapse of FTX led Genesis to “temporarily suspend” withdrawals from Gemini Earn, citing market turmoil and liquidity challenges. Following the SEC’s lawsuit, Genesis filed for bankruptcy, and in February, Gemini agreed to return $1.1 billion to Gemini Earn customers in a settlement facilitated by New York’s financial regulator during Genesis’ bankruptcy proceedings.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

Share link:

Damilola Lawrence

Damilola is a crypto enthusiast, content writer, and journalist. When he is not writing, he spends most of his time reading and keeping tabs on exciting projects in the blockchain space. He also studies the ramifications of Web3 and blockchain development to have a stake in the future economy.

Most read

Loading Most Read articles...

Stay on top of crypto news, get daily updates in your inbox

Related News

Subscribe to CryptoPolitan