Gemini, Genesis Seek Dismissal of SEC’s Lawsuit

Gemini and bankrupt cryptocurrency lender Genesis Global Capital have filed a joint motion to dismiss a Securities and Exchange Commission (SEC) lawsuit.

The lawsuit alleges that “Gemini Earn” violated securities regulations by offering unregistered securities. “Gemini Earn” allowed customers to lend crypto assets such as Bitcoin to Genesis for a fee as high as 4.29%.

According to the companies’ legal filings, Gemini Earn should not be considered a security.

Genesis argued that the transactions were essentially loans and asked the court to dismiss the complaint or, in the alternative, dismiss the SEC’s requests for a permanent injunction and disgorgement.

In addition, the allegation stated that Gemini, not Genesis, was in charge of the customer-facing aspects of the Earn program.

Gemini, which disclosed its role as a transfer agent for Earn, criticized the SEC lawsuit as “ill-conceived” in a blog update directed at Earn users.

In response to the SEC’s lawsuit filed in January, Genesis filed for bankruptcy, resulting in withdrawal restrictions for Earn users beginning in mid-November 2022.

On Monday, May 22nd, Gemini filed a comprehensive claim to recover over $1.1 billion in assets for 232,000 Earn users.

Gemini and the Digital Currency Group (DCG), the parent company of Genesis, are in mediation to develop a restructuring and settlement agreement.

A preliminary agreement from February has not been finalized, and DCG missed a $630 million loan payment to Genesis earlier this month.

Gemini and other creditors are concurrently collaborating on an “amended plan of reorganization” that can be pursued independently if the mediation fails.

The goal is to ensure the best possible outcome for Earn users, according to the exchange’s blog post.

Jack Baughman, the founder of JFB Legal, which represents Gemini, stated in a tweet that the SEC’s case only makes it more difficult and complex to retrieve assets from the Genesis bankruptcy  to make Earn users whole.

It does not affect accelerating the process or releasing assets that must be returned to Earn users.