- Gemini and Genesis Global Capital have demanded that the SEC’s case against it be dismissed
- Lawyers for the two firms claimed that Gemini Earn did not sell securities
- The lawsuit came at a time when the two companies were at loggerheads over $900 million of Gemini user funds trapped on the Genesis platform
Gemini and Genesis Global Capital are seeking to get the Securities and Exchange Commission’s (SEC) case against them tossed, arguing that the Gemini Earn program is not a security. The regulatory body has accused the two crypto firms of offering unregistered securities and sued them in January right when the pair were at loggerheads over $900 million of Gemini user funds trapped on the Genesis platform following its decision to halt withdrawals.
SEC Says Gemini Earn Constituted a Sale of Securities
According to the SEC, in December 2020, Genesis, a subsidiary of Digital Currency Group, allegedly entered into an agreement with Gemini, which was aimed at providing customers with the opportunity to lend their cryptocurrency to Genesis in exchange for interest payments. Subsequently, in February 2021, Genesis and Gemini jointly launched the Gemini Earn program, which allowed retail investors to lend their crypto to Genesis through Gemini acting as the facilitator.
Gemini imposed a fee on users for the service, sometimes as high as 4.29%, based on the interest they earned. The SEC claims that Genesis had discretionary authority over the utilization of investors’ crypto assets to generate revenue and distribute interest to those participating in the Gemini Earn program.
Gemini and Genesis Dismiss SEC Claims
Gemini and Genesis fought back in the filing last week, claiming that charges should be dismissed because the Master Digital Asset Loan Agreement (MDALA) linked to Gemini’s Earn program is “not a security”, “investment contract”, or “security note”. They further argue that the SEC is attempting to transform the Earn program into something it was never intended to be:
While the SEC suggests that the application of the federal securities laws is obvious here, the complaint is a novel attempt to expand their scope beyond any reasonable reading of the relevant statutory language.
This isn’t the only criticism that the SEC has faced over the case. When it was first filed five months ago, Republican senator Tom Emmer accused the SEC of being “late to the game” and ““protecting” no one.”
