A U.S. judge has ruled that lawsuits alleging securities violations by cryptocurrency companies Gemini and Genesis are valid.
District Judge Edgardo Ramos denied a motion to dismiss filed by Gemini cryptocurrency exchange and cryptocurrency lender Genesis in a U.S. SEC complaint filed through the Earn program hosted by the two companies until the end of 2022.
In a March 13 court order, Judge Ramos said the SEC had provided sufficient grounds to allege that Gemini and Genesis violated U.S. securities regulations.
The decision, issued in the U.S. District Court for the Southern District of New York, cited the Howey and Reves tests, to which the Commission referred, as the appropriate basis for qualifying a revenue program under existing securities regulations.
At this stage, under both tests, the court finds merit in the complaint alleging that defendants offered and sold unregistered securities through the Gemini Earn program. As a result, defendant’s motion to dismiss is denied.
Judge Edgardo Ramos
In a January 2023 lawsuit, the SEC litigants alleged that cryptocurrency companies marketed the Earn product as an investment opportunity. Investors maintain their profit expectations through the efforts of others to meet securities requirements according to the institution.
Notably, Genesis had previously attempted to have the SEC’s complaint dismissed, arguing that Gemini’s Earn program operated under a loan origination model rather than a securities contract. The Digital Current Group subsidiary also reached a $21 million settlement with fees in a civil lawsuit.
Both companies have been the subject of several enforcement actions initiated by U.S. regulators, including the New York Attorney General’s Office (NYAG). NYAG Letitia James is suing three companies, Gemini, Genesis, and DCG, for $1 billion over alleged cryptocurrency fraud.