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The U.S. Securities and Exchange Commission (SEC) prosecution against cryptocurrency exchange Gemini and lender Genesis can now move forward, according to a recent decision made by a New York judge. The ruling follows the denial in a court filing on Wednesday of the two defendants’ requests to have the lawsuit dismissed.
The SEC’s case “plausibly alleges,” according to Judge Edgardo Ramos of the Southern District of New York, that Genesis and Gemini offered and sold unregistered securities to retail investors through the now-defunct Gemini Earn program, in violation of securities laws. Though the court’s judgment on the request to dismiss does not signal the court’s ultimate view of the SEC’s charges, it does recognize the agency’s reasonableness.
Retail clients were first given the chance to earn up to 8% interest on cryptocurrency tokens invested through the platform when the Gemini Earn program was introduced in February 2021. Yet, the SEC’s lawsuit claims that the scheme brought in over 340,000 retail customers and $900 million in assets prior to encountering a liquidity issue in November 2022, which prompted Genesis to suspend withdrawals.
On January 10, 2023, the Gemini Earn program was phased down amid escalating hostilities between Genesis and Gemini leadership. The SEC brought accusations against both businesses two days later. Genesis then filed for bankruptcy in the same month, significantly complicating the already complex legal situation.
In May 2023, Gemini and Genesis submitted motions to dismiss the case in response to the SEC’s accusations. They also filed alternative arguments to invalidate the SEC’s petitions for disgorgement and permanent injunctive relief against both companies. The legal battle between the SEC and the two cryptocurrency companies is still ongoing, but Judge Ramos rejected these requests, clearing the path for the case to move forward.