Bankrupt lender Genesis Global Capital and cryptocurrency exchange platform Gemini have filed a request with a U.S. court to have a lawsuit filed by the Securities and Exchange Commission (SEC) dismissed.
According to court documents filed on Friday, the SEC accused the two entities of selling unregistered securities. In January, the SEC filed the lawsuit in a New York court, specifically targeting Gemini’s yield-bearing product called Earn. The SEC claimed that through this unregistered offering, the two entities managed to raise crypto assets worth billions of dollars from hundreds of thousands of investors.
The Securities and Exchange Commission (SEC) stated in its complaint that Genesis, as accused, had the authority to determine how investors’ crypto assets would be utilized to generate profits and provide interest to investors in this cryptocurrency exchange earn. It is worth noting that Genesis, similar to CoinDesk, is a subsidiary of the Digital Currency Group (DCG).
Gemini’s Lawsuit Explained
According to Gemini’s filings on Friday, in relation to the Earn program, participants had the option to engage in additional transactions as borrowers and lenders. However, they emphasized that it did not impose any lending or borrowing requirements and that lenders could not transfer or assign their participation without the consent of all parties involved.
This cryptocurrency exchange further argued that the SEC’s categorization of the tri-party Master Digital Asset Loan Agreement (MDALA) contract, involving Genesis, Gemini, and Earn users, as an unregistered security lacks legal and factual justification.
The supporting motion to dismiss stated that the SEC did not provide sufficient evidence to establish that MDALA was a security and failed to present concrete allegations regarding its sale or any offering. In the original complaint, the SEC highlighted that Genesis held approximately $900 million in assets from about 340,000 investors in Gemini Earn.
However, Genesis froze withdrawals from the platform in November and subsequently filed for bankruptcy protection in the U.S. SEC Chair Gary Gensler asserted that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements meant to safeguard investors. In response, Gemini co-founder Tyler Winklevoss criticized the lawsuit, referring to it as a “manufactured parking ticket.”