Gemini, Genesis File to Dismiss SEC Lawsuit Over Earn Product

Crypto exchange Gemini Trust Co. and bankrupt lender Genesis Global Capital on Friday filed to dismiss a lawsuit by the Securities and Exchange Commission that alleges that their Earn product amounted to an offering of unregistered securities.

(Bloomberg) — Crypto exchange Gemini Trust Co. and bankrupt lender Genesis Global Capital on Friday filed to dismiss a lawsuit by the Securities and Exchange Commission that alleges that their Earn product amounted to an offering of unregistered securities.

The companies’ filings claimed that Earn, which allowed users to lend out coins to earn a yield, wasn’t a security. Genesis argued that the transactions were in effect loans and asked the court to dismiss the complaint, or “in the alternative, strike the SEC’s requests for a permanent injunction and disgorgement.”

It also alleged that Gemini and not Genesis “ran the customer-facing operations of the Earn program.” Gemini, which argued it was just a transfer agent for Earn, called the SEC lawsuit “ill-conceived” in its blog update to Earn users.

An SEC representative didn’t immediately return a request for comment.

The SEC sued both companies in January, and Genesis filed for bankruptcy soon after. Earn users have been unable to withdraw their funds since mid-November. On Monday, Gemini filed a master claim seeking the return of more than $1.1 billion in assets to 232,000 Earn users.

Gemini, Genesis and its parent company, Digital Currency Group, are in mediated negotiations this month trying to come up with 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 working on an “amended plan of reorganization that could be advanced without DCG’s consensual participation should the mediation fail and that will achieve the best possible outcome for Earn users,” the exchange said in the blog. DCG had previously said it’s in parallel discussions to refinance its debt.

The case is In re Securities and Exchange Commission v. Genesis Global Capital LLC et al, Southern District of New York, No. 1:23-cv-00287-ER, 5/26/23

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