- Cryptocurrency exchange Gemini has urged a federal judge to dismiss its SEC lawsuit, arguing that the regulator has not proven the sale of unregistered securities.
- Gemini’s legal team contends that the SEC’s claims lack evidence to establish their case in court regarding Gemini Earn and a loan program.
- The debate over crypto tokens as securities persists due to unclear regulatory guidance, with Gemini’s lawyers rejecting the notion that their offerings were sold to customers.
Crypto exchange has attempted to get the lawsuit filed against it by the Securities and Exchange Commission (SEC) thrown out, arguing that it has “failed to convincingly demonstrate” that it sold securities. The SEC filed the lawsuit in January, alleging that the Gemini Earn program was the equivalent of an unregistered security, but Gemini has dismissed this claim, contending that the SEC has not provided sufficient evidence to back up its claim.
Gemini Criticizes SEC Position
In a 15-page document submitted on Friday, Gemini’s attorneys strongly criticized the SEC’s position that its Gemini Earn program, which involves interest earning, and a separate loan initiative should be classified as customer sales. The company’s lawyers stated, “Even if we hypothetically accept that the SEC has described something as a security (under either of its inconsistent theories), it has failed to convincingly demonstrate that such a security was actually sold or made available for purchase.”
The SEC filed a lawsuit against Gemini and crypto lending company Genesis on January 12, alleging that the pair had sold unregistered securities to retail investors. The lawsuit specifically highlighted Gemini Earn and the Master Digital Asset Loan Agreement (MDALA) as examples of securities offered to potentially hundreds of thousands of investors.
Instruments Were Not Sold to Customers, Says Gemini
While Gemini’s legal team acknowledged the potential for Gemini Earn or MDALA to be categorized as securities, they vehemently opposed the notion that these were being sold to customers. Regarding MDALA, they argued that the loan agreements did not constitute sales to customers under legal standards and criticized the SEC’s arguments as being “inherently contradictory”:
“Even a child running a lemonade stand understands that when an item is sold, ownership of that item—like the lemonade—transfers from the seller to the buyer in exchange for value. Even if MDALAs are classified as securities, the SEC has not provided plausible evidence that they were ever sold or offered for sale.”
When it comes to Gemini Earn, the attorneys were more direct in their rebuttal of the SEC’s claim that the program itself qualifies as a security, asserting that this claim has no factual basis.
The debate over whether cryptocurrencies should be classified as securities within the confines of existing law has been a topic of hot debate and plentiful legal action in recent years. Many in the industry have expressed frustration over what they perceive as a lack of clear regulatory guidance from the SEC, along with its reliance on punitive actions. However, the SEC, under the leadership of Chairman Gary Gensler, asserts that the legal framework is well-defined, and it is non-compliance from crypto companies that triggers these lawsuits.
