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Gemini and Genesis were charged with a case by the SEC in the Southern District of New York, and the latest hearing occurred on Wednesday, March 13.
The United States Securities and Exchange Commission said that Gemini and Genesis were engaged in the sale of unregistered securities through the Gemini Earn program. A federal judge has approved the allegations, enough to bring a company to the witness box. Both firms were allowed to move forward in the latest hearing, but the two defendants’ motions were denied.
The SEC Lawsuit
On March 13, Edgardo Ramos released the New York District Court ruling. It had released a 32-page detailed order that denied the motions by Genesis and Gemini to dismiss or disapprove of the SEC’s lawsuit.
The SEC initiated the lawsuit in January 2023. It claimed that the Gemini Earn program was a cryptocurrency yield-bearing product. Gemini offered the product, and Genesis managed it. Moreover, the product involved the sale and offering of unregistered securities.
Edgardo Ramos emphasized that the program wrongly appeared to meet the criteria of an investment contract according to the Howey test. It determines what constitutes security. The test determines the constituents of security.
Genesis was especially highlighted for not segregating pooled assets on its balance sheet, and it also lent these funds to institutional borrowers at its discretion. This move made customers’ profit expectations dependent on Genesis’ efforts.
Moreover, the court found that it was reasonable to believe that agreements underpinning Gemini’s Earn program could be classified as notes, a type of debt security that mandates the repayment of loans with interest.
“At this stage, under both tests, the court finds that the complaint plausibly alleges that defendants offered and sold unregistered securities through the Gemini Earn program,” stated Judge Ramos.
The ruling does not guarantee a court judgment in favor of the SEC. Still, it will also allow the regulatory body to proceed with its case, requiring the collection of multiple pieces of evidence.
Development in the case
The developments in the case follow a backdrop of challenges for Genesis and Gemini, including Genesis’ bankruptcy filing after the SEC’s lawsuit and subsequent agreement to a $21 million settlement with the SEC noted in a bankruptcy court filing the previous month.
In November 2022, 340,000 customers and $900 million in assets under management were boasted because of the controversy surrounding the Gemini Earn program. The controversy intensified after FTX’s bankruptcy, which led to market turmoil.
This change in market forces led Genesis to halt withdrawals from Gemini Earn, citing liquidity issues. To resolve customer grievances, Gemini agreed in February to return $1.1 Billion to Gemini Earn customers via a settlement in the Genesis bankruptcy proceedings, coordinated with New York’s financial regulator.
In May 2023, Gemini and Genisis filed motions to dismiss the case against them. Additionally, subsequent alternative motions to strike the SEC’s request for permanent injunctive relief and disgorgement against both firms. However, both were denied, and it was ruled that the case would be allowed to proceed in the Southern District Court.
Amanda Shinoy is one of the few women in the space invested knee-deep in crypto. An advocate for increasing the presence of women in crypto, she is known for her accurate technical analysis and price prediction of cryptocurrencies. Readers are often waiting for her opinion about the next rally. She is a finance expert with an MBA in finance. Quitting a corporate job at a leading financial institution, she now engages herself full-time into financial education for the general public.
