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Cryptocurrency exchange Gemini is calling on a federal judge to dismiss a lawsuit filed against it by the Securities and Exchange Commission (SEC) in January. The exchange’s lawyers argue that the SEC’s case against the company, accusing it of selling unregistered securities, is unconvincing.
The SEC’s lawsuit alleges that both Gemini and crypto lender Genesis sold unregistered securities to retail investors. Specifically, the lawsuit singles out the Gemini Earn program and the Master Digital Asset Loan Agreement (MDALA), alleging that they were offered to as many as 340,000 investors as securities.
In a 15-page filing, Gemini’s lawyers questioned the SEC’s claims that the Gemini Earn program and the separate loan program qualified as securities sales. They contend that, even if the offerings could be viewed as securities, the SEC has not effectively shown that they were sold or offered for sale.
Gemini’s legal team further criticized the SEC’s argument that MDALAs were “offered and sold” as securities under the law. They called this line of reasoning “fundamentally inconsistent” and highlighted the basic principle of sales transactions. “A child running a lemonade stand knows that when something is sold, ownership of the thing at issue—the lemonade—transfers from the seller to the buyer, in exchange for value,” they wrote. The lawyers assert that even if MDALAs are considered securities, the SEC has not provided credible evidence that they were ever sold or offered for sale.
The lawyers also took issue with the SEC’s claim that the Gemini Earn program is a security, calling the assertion “frivolous.” They argued that the assertion lacks a factual basis and has no connection to reality. In the Gemini Earn program, customers were promised high interest rates on cryptocurrencies invested in it. According to the lawyers, earning interest on these tokens should not be classified as a securities sale, but rather as borrowed assets that can be returned upon request.