US judge denies motions to dismiss SEC's lawsuit against Gemini Earn program
Quick Take
- The SEC “plausibly alleged” that Genesis Global Capital, LLC and Gemini Trust Company, LLC offered and sold unregistered securities, said Judge Edgardo Ramos in an order.
- The SEC first charged the two in January 2023 for the unregistered offer and sale of securities to retail investors through Gemini Earn
A U.S. district judge has denied motions from crypto exchange Gemini and crypto lender Genesis to dismiss a case brought by the Securities and Exchange Commission over the Gemini Earn program.
Judge Edgardo Ramos said in an order in the U.S. District Court for the Southern District of New York on Wednesday that the SEC "plausibly alleged" that both Genesis Global Capital, LLC and Gemini Trust Company, LLC offered and sold unregistered securities.
The judge cited the Howey Test and Reves Test, which lay out a multi-factor test to determine whether an asset falls under the securities laws.
"Under both Howey and Reves, the SEC has plausibly alleged that Defendants offered and sold unregistered securities through the Gemini Earn program," Judge Ramos said. "As a result, Defendants’ motions to dismiss are DENIED."
A year in the making
The SEC first charged Genesis and Gemini in January 2023 for the unregistered offer and sale of securities to retail investors through Gemini Earn. In 2021, the Winklevoss twins-led company launched Gemini Earn, allowing Gemini customers to loan their crypto to now-bankrupt Genesis Global Capital, LLC and earn up to 7.4 percent APY.
In the complaint, the SEC said Gemini Earn investors "reasonably expected to profit from the efforts of defendants."
"The complaint sufficiently alleges that Gemini Earn investors had an expectation of profits," Judge Ramos said on Wednesday. "Defendants marketed Gemini Earn as an investment opportunity and publicly touted investors’ ability to earn returns."
Genesis and Gemini sought to dismiss the SEC's lawsuit in May and argued that the assets involved were not securities. Genesis argued that Gemini Earn involved the creation of loans, not securities.
"This is simply a preliminary ruling, and we are confident that Gemini will ultimately prevail in this case. The Gemini Earn program was not itself a security and did not involve the sale of any securities," said Jack Baughman, Gemini's outside counsel and a founding partner at Baughman Kroup Bosse PLLC, in an emailed statement to The Block.
Genesis' parent company, Digital Currency Group, did not immediately respond to a request for comment.
Updated at 4:05 p.m. ET to include a comment from Gemini
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