A U.S. district judge has denied a request by the Securities and Exchange Commission to dismiss a case brought by cryptocurrency exchange Gemini and cryptocurrency lender Genesis regarding their Gemini Earn program.
Judge Edgardo Ramos said in an order Wednesday in the U.S. District Court for the Southern District of New York that the SEC “plausibly alleged” that Genesis Global Capital, LLC and Gemini Trust Company, LLC offered and sold unregistered securities.
The judge cited the Howey test and the Reves test, which implement a multi-step test to determine whether assets fall within the securities laws.
“Under Howey and Reves, the SEC plausibly asserted that defendants offered and sold unregistered securities through the Gemini Earn program,” Judge Ramos said. “As a result, defendant’s motion to dismiss is denied.”
1 year in preparation
SEC first charged In January 2023, Genesis and Gemini made an unregistered offer and sale of securities to individual investors through Gemini Earn. In 2021, the company led by the Winklevoss twins launched Gemini Earn, allowing Gemini clients to earn money from the now-bankrupt Genesis Global Capital, LLC and Earn Up to 7.4% APY.
In the complaint, the SEC said Gemini Earn investors “reasonably expected to benefit from Defendants’ efforts.”
“It is fully reflected in this complaint that Gemini Profit investors had an expectation of profit,” Judge Ramos said Wednesday. “Defendants marketed Gemini Earn as an investment opportunity and publicly touted its ability to generate returns for investors.”
Genesis and Gemini found It dismissed the SEC’s lawsuit in May, arguing that the assets involved were not securities. Genesis argued that Gemini Earn involved originating 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 a security per se and did not involve the sale of any securities,” it said. Jack Baughman, Gemini’s outside counsel and founding partner of Baughman Kroup Bosse PLLC, said 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 PM ET to include comments from Gemini.
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