A U.S. judge ruled that a legal case accusing crypto entities Gemini and Genesis of securities infractions holds merit. In a decisive move, District Judge Edgardo Ramos rebuffed attempts by the Gemini crypto exchange and the crypto lending firm Genesis to dismiss a complaint by the U.S. Securities and Exchange Commission (SEC) concerning an Earn program jointly operated by the two companies until the end of 2022.
On March 13, within a legal directive, Judge Ramos articulated that the SEC had adequately demonstrated grounds to claim that Gemini and Genesis breached U.S. securities regulations.
The judgment, emanating from a courtroom in the Southern District of New York, pointed to the application of the Howey Test and Reves Test by the regulatory body as sufficient grounds to classify the Earn program within the ambit of current securities regulations.
At this preliminary phase, leveraging both legal assessments, the court concluded that the allegations convincingly suggest that the defendants engaged in the offering and sale of unregistered securities via the Gemini Earn initiative. Consequently, the requests to dismiss lodged by the defendants were rejected.
Judge Edgardo Ramos
In the lawsuit initiated in January 2023, SEC attorneys contended that the cryptocurrency firms presented the Earn product as an attractive investment prospect, where investors anticipated profits derived from the efforts of third parties, thereby meeting the criteria for securities under the agency’s guidelines.
Genesis, for its part, previously sought to negate the SEC’s claims, asserting that the operations of Gemini’s Earn program were based on a model of loan generation rather than being securities contracts. Additionally, the subsidiary of the Digital Currency Group settled a civil lawsuit with the commission for $21 million.
These entities have been at the center of several regulatory interventions by U.S. authorities, including the office of the New York Attorney General (NYAG). NYAG Letitia James initiated a lawsuit against the trio, Gemini, Genesis, and DCG, demanding $1 billion over an alleged cryptocurrency fraud scheme.