3 - 5 minute read
Bankrupt crypto lender Genesis Global Capital and exchange platform Gemini are currently facing a lawsuit from the Securities and Exchange Commission (SEC). The regulatory body alleges that the two companies sold unregistered securities. The lawsuit, filed in January of 2023, targeted Gemini’s yield-bearing product Earn, which the SEC claims was an unregistered offering that raised billions of dollars worth of crypto assets from hundreds of thousands of investors.
According to court filings from Friday, Genesis and Gemini are now asking a U.S. court to dismiss the lawsuit. The SEC claimed that Genesis exercised discretion in how it used investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors. Genesis, like CoinDesk, is owned by the Digital Currency Group (DCG).
While the Earn program allowed borrowers and lenders to engage in subsequent transactions, Gemini claimed in its filings that it did not require any lending or borrowing by any party, and there was no way for a lender to transfer or assign it without the affirmative consent of all parties. Furthermore, Gemini alleged that the SEC’s treatment of the tri-party Master Digital Asset Loan Agreement (MDALA) contract between Genesis, Gemini and Earn users as an unregistered security “has no basis in law or fact.”
The SEC failed to “adequately plead” that the MDALA was a security and failed “to make non-conclusory allegations that the MDALA was sold to anyone, or that any party offered to sell it,” according to the document supporting a motion to dismiss.
In its original complaint, the SEC noted that Genesis held around $900 million in assets belonging to some 340,000 Gemini Earn investors when it froze withdrawals from the platform in November shortly before filing for bankruptcy protection in the U.S. SEC Chair Gary Gensler said at the time, “We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors.” Gemini co-founder Tyler Winklevoss fired back at the suit, calling it a “manufactured parking ticket.”
Traders should pay attention to the outcome of this lawsuit as it will have significant implications for the crypto industry. The SEC’s allegations against Genesis and Gemini could set a precedent for future cases involving unregistered securities. If the lawsuit is dismissed, it may provide a boost to the crypto market, as it could signal to investors that regulators are not as hostile to the industry as previously thought.
On the other hand, if the SEC’s case is successful, it could lead to increased scrutiny of other crypto companies, potentially leading to a decrease in investor confidence and a corresponding drop in prices. It is essential for traders to stay informed and monitor developments in this case closely.
The Bottom Line
The lawsuit filed by the SEC against Genesis Global Capital and exchange platform Gemini alleging the sale of unregistered securities is significant for the crypto industry. Traders should pay close attention to the outcome of the case as it could have significant implications for future regulatory actions against crypto companies.