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U.S. District Judge Edgardo Ramos denied requests by cryptocurrency exchange Gemini and crypto lender Genesis to dismiss a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). The case was about the Gemini Earn program.
The decision was handed down in the U.S. District Court for the Southern District of New York. Judge Ramos noted that the SEC “plausibly alleges” that both Genesis and Gemini offered and sold unregistered securities.
The judge's decision is based on the Howey Test and the Reves Test, which are multi-factor tests used to determine whether an asset falls within the scope of securities laws. “Under both Howey and Reves, the SEC plausibly alleged that Defendants offered and sold unregistered securities through the Gemini Earn program,” Judge Ramos said. As a result, requests to dismiss the case were rejected.
The SEC first accused Genesis and Gemini of offering and selling unregistered securities to individual investors through the Gemini Earn program in January 2023.
The program, launched in 2021 by the company led by the Winklevoss twins, allowed Gemini customers to lend their crypto to the now-bankrupt Genesis and earn returns of up to 7.4 percent.
In its criminal complaint, the SEC stated that Gemini Earn investors “expected to profit reasonably from defendants' efforts.” Judge Ramos agreed with this assessment, saying:
“The complaint sufficiently alleges that Gemini Earn investors expected profits. Defendants marketed Gemini Earn as an investment opportunity and touted to the public the investors' ability to generate returns.”
Genesis and Gemini attempted to dismiss the SEC's case in May, arguing that the assets in question were not securities.
*This is not investment advice.