Gemini, the prominent cryptocurrency exchange, and bankrupt crypto lender Genesis Global Capital have jointly filed a motion to dismiss a Securities and Exchange Commission (SEC) lawsuit concerning their collaborative product, Gemini Earn.
The lawsuit alleges that Gemini Earn violated securities regulations by offering unregistered securities to customers who lent their crypto assets to Genesis. The companies argue that Gemini Earn should not be classified as a security, asserting that the transactions were essentially loans.
In response to the SEC’s lawsuit, Genesis filed for bankruptcy, leading to withdrawal restrictions for Earn users since mid-November 2022. To recover funds for affected users, Gemini filed a comprehensive claim seeking over $1.1 billion in assets on behalf of 232,000 Earn users.
The parent company of Genesis, the Digital Currency Group (DCG), is currently engaged in mediated negotiations with Gemini to develop a restructuring and settlement agreement. While a preliminary deal was proposed in February, it has yet to be finalized, and earlier this month, DCG missed a $630 million loan payment to Genesis.
Gemini has taken on the role of a transfer agent for the Earn program and maintains that it is responsible for the customer-facing aspects of the platform. In a blog post addressing Earn users, Gemini criticized the SEC lawsuit as “ill-conceived” and reiterated its commitment to ensuring the optimal outcome for users.
The SEC’s case has drawn criticism from Jack Baughman, a founding partner of JFB Legal, overseeing the lawsuit. Baughman argues that the lawsuit complicates retrieving assets from the Genesis bankruptcy and delays efforts to compensate Earn users. He believes that the SEC’s actions do not contribute to expediting the process or facilitating the return of assets to affected users.
Gemini and other creditors are collaborating on an “amended plan of reorganization” that can be pursued independently if the mediated negotiations with DCG fail to reach a satisfactory agreement. The primary objective is to secure the best possible outcome for Earn users, as emphasized by Gemini in its blog post.
The court will now review the dismissal motion filed by Gemini and Genesis, and the final decision regarding the SEC lawsuit and the fate of Gemini Earn will be determined in due course. Earn users remain hopeful that a resolution will be reached that allows for the return of their assets and end the prolonged withdrawal restrictions they have faced since November 2022.