Gemini and Genesis Fight Back Against SEC Lawsuit, Seek Dismissal of Allegations

In January 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Gemini and Genesis for allegedly offering unregistered securities to American customers. The SEC complaint alleges that “through this unregistered offering, Genesis and Gemini raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors.”

In a court document filed on May 26, 2023, lawyers representing Gemini and Genesis insisted that the SEC’s “complaint must be dismissed” because the “Master Digital Asset Loan Agreement (MDALA)” linked to Gemini’s Earn program is “not a security.” The lawyers argue that the SEC is attempting to transform the Earn program into something it was never intended to be. The Gemini and Genesis dismissal motion states:

While the SEC suggests that application of the federal securities laws is obvious here, the complaint is a novel attempt to expand their scope beyond any reasonable reading of the relevant statutory language.

The SEC’s lawsuit against Gemini and Genesis is not the first time that securities regulators have taken action against interest-bearing crypto platforms. Prior to the bankruptcy filings of Celsius and Blockfi, securities officials from several states had filed complaints and cease-and-desist orders against them. Despite the SEC’s complaints against interest-bearing accounts, Gemini and Genesis maintain that the MDALA does not meet the definitions of a security.

“The reality is that the MDALA was never sold or offered for sale, could not be traded on any secondary market, did not involve the transfer of title to any asset, and did not require any lending or borrowing by anyone,” the dismissal motion adds. The two crypto companies claim that even if the SEC adequately alleged that the MDALA is a security, the regulator “failed to make non-conclusory allegations that the MDALA was sold to anyone, or that any party offered to sell it.”

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