Cryptocurrency exchange Gemini and bankrupt crypto lender Genesis Global Capital have jointly filed for the dismissal of a Securities and Exchange Commission (SEC) lawsuit. The lawsuit claims “Gemini Earn” — which let customers lend crypto assets such as Bitcoin (BTC) to Genesis, with Gemini taking a fee as high as 4.29% — violated securities regulations by offering unregistered securities.
The companies’ legal filings contend that Gemini Earn should not be classified as a security. Genesis argued the transactions were essentially loans and requested the court to dismiss the complaint or, alternatively, strike the SEC’s requests for a permanent injunction and disgorgement.
Furthermore, the allegation stated that Gemini, not Genesis, was responsible for the customer-facing aspects of the Earn program. Gemini, which declared its role as a transfer agent for Earn, criticized the SEC lawsuit as “ill-conceived” in a blog update addressed to Earn users.
Following the SEC’s lawsuit in January, Genesis subsequently filed for bankruptcy, leading to Earn users facing withdrawal restrictions since mid-November 2022. In response, Gemini filed a comprehensive claim on Monday, May 22, aiming to recover over $1.1 billion in assets for 232,000 Earn users.
Gemini and Genesis’s parent company, the Digital Currency Group (DCG), are in mediated negotiations to develop a restructuring and settlement agreement. A preliminary deal from February hasn’t been finalized, and earlier this month, DCG missed a $630 million loan payment to Genesis.
At the same time, Gemini and other creditors are collaborating on an “amended plan of reorganization” that can be pursued independently if the mediation process fails. The objective is to ensure the optimal outcome for Earn users, as stated by the exchange in its blog post.
In a tweet, Jack Baughman, a founding partner of JFB Legal, which represents Gemini, said the SEC’s case is only making it harder and more complicated to retrieve assets from the Genesis bankruptcy to make Earn users whole. It does nothing to speed up the process and unlock assets that need to be returned to Earn users.