Judge denies Gemini and Genesis’ motion to dismiss SEC lawsuit.

Gemini and Genesis Hit with Setback as Judge Denies SEC Lawsuit Dismissal

In a surprising turn of events, Judge Edgardo Ramos has rejected Gemini and Genesis’ request to dismiss the SEC’s lawsuit against them. The U.S. District Court in New York has suggested that the companies may have violated securities regulations by offering unregistered securities, based on the Howey and Reves standard tests.

Gemini’s Earn platform, which launched in February 2021, offered an attractive 8% interest on crypto investments. However, an SEC complaint in November 2022 revealed that the platform had accumulated 340,000 users and $900 million in assets, leading to the suspension of withdrawals due to overwhelming demand. Despite this, the recent ruling denies Gemini and Genesis’ motions to dismiss the lawsuit and also rejects their request to halt the SEC’s action and surrender profits from Gemini Earn if the SEC succeeds.

The judge determined that the SEC’s lawsuit adequately demonstrated that Gemini Earn qualified as a security under the Howey test, which is widely used to determine the securities status of digital assets. Customers who invested in the platform were part of a common venture and expected to make a profit, supporting the SEC’s claim that unregistered securities were sold through Gemini Earn.

The fallout from this ruling has led to Genesis filing for bankruptcy. However, Gemini Trust Co., founded by Cameron and Tyler Winklevoss, has agreed to reimburse customers with a minimum of $1.1 billion through the Genesis bankruptcy settlement with the state of New York.

While this ruling doesn’t guarantee victory for the SEC, it allows the case to proceed, with both sides now moving forward to gather evidence. Genesis recently reached a $21 million settlement with the SEC, and Gemini has agreed to return $1.1 billion to Gemini Earn customers through the bankruptcy proceedings.

In May 2023, both companies attempted to have the case dropped, arguing that the SEC hadn’t proven their Master Digital Asset Loan Agreement was a security. However, Wednesday’s ruling enables both parties to continue with pretrial discovery, gathering evidence before the trial. Depending on the outcome of this process, the companies may try to dismiss the case again.

The SEC’s lawsuit against Gemini and Genesis is just one of several high-profile legal battles in the crypto industry. Binance, Coinbase, and Kraken are among the companies facing allegations of illegal securities offerings. While Binance has settled with other agencies, its case with the SEC is ongoing.