In a joint motion to dismiss a lawsuit by the US Securities and Exchange Commission (SEC) against Gemini and Genesis Global Capital, the two cryptocurrency firms have stated that the SEC has no legal basis to describe the Earn program as the sale of unregistered securities. Gemini and Genesis have insisted that the program was a crypto asset lending service. The SEC had filed a complaint against the two companies in January for allegedly selling unregistered securities to retail investors in the US through the Gemini Earn program. The program was launched in December 2020 and was closed down earlier this year after Genesis halted withdrawals and could no longer pay interest to Gemini’s clients because of insufficient liquid assets resulting from the crypto market’s downturn. Genesis filed for Chapter 11 bankruptcy protection in January and the fate of the hundreds of thousands of Gemini investors owed over $900 million by Genesis remains unknown.
The Motion to Dismiss
Gemini and Genesis argued that the Master Digital Asset Loan Agreement (MDALA) for the Gemini Earn program was not an investment contract. They further insisted that the agreement was never sold or offered for sale, could not be traded on any secondary market, did not involve the transfer of title of any asset, and did not require any lending or borrowing by anyone. The defendants stated that the MDALA was a commercial agreement not covered by Section 5 of the Securities Act, which requires the sale of or offer to sell a security.
Gemini and Genesis stated that allowing the SEC to proceed with the case would mean ignoring the Securities Act’s “plain meaning”. They also alleged that the SEC had bypassed disclosure requirements created to protect investors and violated federal securities laws. The defendants insisted that the Earn program was never intended to be an investment contract and that the SEC’s complaint was a novel attempt to expand the scope of federal securities laws beyond any reasonable reading of the relevant statutory language. Gemini and Genesis argued that the SEC is trying to turn the Earn program into something it was not: the sale of unregistered securities. They said that the SEC’s suggestion that the application of federal securities laws is obvious in this case is not correct.
Gemini and Genesis have jointly filed a motion to dismiss a lawsuit from the SEC against the former’s Earn program. They argued that the SEC has no basis in law to describe the Earn product as the sale of unregistered securities, as it was a crypto asset lending service. Gemini and Genesis further insisted that the Master Digital Asset Loan Agreement (MDALA) for the Gemini Earn program was not an investment contract and that the SEC had bypassed disclosure requirements created to protect investors and violated federal securities laws. They argued that the Earn program was never intended to be an investment contract and that the SEC’s complaint was a novel attempt to expand the scope of federal securities laws beyond any reasonable reading of the relevant statutory language.
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