Judge Edgardo Ramos of the New York District Court has ruled that the US Securities and Exchange Commission's (SEC) lawsuit against crypto firms Gemini and Genesis can proceed.
The order dated March 13 found the allegations of selling unregistered securities through the Gemini Earn program—managed by Genesis and offered by Gemini—plausible and rejected attempts by the firms to dismiss the lawsuit.
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The SEC's suit, filed in January 2023, argues that Gemini Earn offered and sold unregistered securities based on a legal standard used to determine what constitutes a security.
The court found that Genesis had pooled assets on its balance sheet and extended loans to institutional borrowers based on its own discretion, leading to customers' profits being directly tied to Genesis' efforts.
Furthermore, Judge Ramos agreed with the SEC's assertion that the Gemini Earn agreements could be considered notes, recognized as a type of debt security requiring the repayment of loans with interest.
At this stage, under both tests, the Court finds that the complaint plausibly alleges that Defendants offered and sold unregistered securities through the Gemini Earn program.
The court also refused the firms' request to halt the SEC's directive to cease selling securities and the order to surrender profits from the Gemini Earn program if the SEC wins the legal battle.
Despite the decision to let the lawsuit proceed, it does not indicate a judgment in favor of the SEC. The regulator must still substantiate its claims as the case progresses into the evidence-collection phase.
Genesis filed for bankruptcy following the lawsuit. In February, Gemini consented to a settlement with New York's financial regulator to refund $1.1 billion to Gemini Earn customers through the bankruptcy proceedings.
As the case advances, it underscores the importance of regulatory compliance and the potential implications for the broader cryptocurrency market.
