Gemini and Bankrupt Lender Genesis Ask U.S. Court to Dismiss SEC Lawsuit Targeting Earn Program

Bankrupt crypto lender Genesis Global Capital and exchange platform Gemini are asking a U.S. court to dismiss a lawsuit by the Securities and Exchange Commission alleging the two sold unregistered securities, court filings from Friday show.

The SEC, in a lawsuit filed in January to a New York court, targeted Gemini's yield-bearing product Earn, an unregistered offering through which the regulator alleged the two entities "raised billions of dollars’ worth of crypto assets from hundreds of thousands of investors."

"As alleged in the complaint, Genesis then exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors," the SEC said in its complaint. Genesis, like CoinDesk, is owned by the Digital Currency Group (DCG).

While with the Earn program "the borrower and lender could choose to engage in subsequent transactions," Gemini said in Friday's filings that "it did not itself require any lending or borrowing by any party, and there was no way for a lender to transfer or assign it without the affirmative consent of all parties."

Gemini further alleged the SEC's treatment of the tri-party Master Digital Asset Loan Agreement (MDALA) contract between Genesis, Gemini and Earn users as an unregistered security "has no basis in law or fact."

The SEC failed to "adequately plead" MDALA was a security and failed "to make non-conclusory allegations that the MDALA was sold to anyone, or that any party offered to sell it," the document supporting a motion to dismiss said.

In its original complaint, the SEC noted Genesis held around $900 million in assets belonging to some 340,000 Gemini Earn investors, when it froze withdrawals from the platform in November shortly before filing for bankruptcy protection in the U.S.

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors,” SEC Chair Gary Gensler said at the time. Gemini co-founder Tyler Winklevoss fired back at the suit, calling it a "manufactured parking ticket."