Judge Denies Dismissal: SEC Lawsuit Against Gemini and Genesis to Move Forward

In a surprising turn of events, Judge Edgardo Ramos delivered a significant blow to Gemini and Genesis on March 13 by denying their request to dismiss the SEC’s lawsuit. The U.S. District Court in New York expressed concerns that the two companies may have violated securities regulations by offering unregistered securities. The court examined their actions through the Howey and Reves standard tests.

Gemini’s Earn program, which launched in February 2021, caught the attention of many with its promise of an 8% interest rate on crypto investments. By November 2022, the program had amassed 340,000 users and $900 million in assets. However, due to overwhelming demand, withdrawal requests had to be halted, resulting in frozen user funds.

The judge ultimately agreed with the SEC’s argument that Gemini Earn qualified as a security based on the US Supreme Court’s Howey test. Customers invested in a common venture with the expectation of making a profit. Therefore, the SEC’s claim that unregistered securities were sold through Gemini Earn is plausible.

The fallout from this ruling has been significant, with Genesis filing for bankruptcy as a result of the SEC’s legal actions. In an effort to mitigate the consequences, Gemini Trust Co., led by the Winklevoss twins, has pledged to reimburse customers up to $1.1 billion through Genesis’ bankruptcy settlement with the state of New York.

While this ruling does not guarantee a victory for the SEC, it does allow the case to proceed, with both sides now preparing to gather evidence. The next step will involve pretrial discovery, where both parties will exchange evidence before the trial. After reviewing records and witness testimonies, there may be another attempt to dismiss the case. This legal battle reflects the broader scrutiny faced by the cryptocurrency industry, as other major players like Coinbase, Kraken, and Binance also face similar legal challenges.

Given the significant financial stakes and the scrutiny of industry giants, the outcome of this courtroom clash will have implications far beyond Wall Street.