A U.S. judge found a lawsuit alleging securities violation by crypto companies Gemini and Genesis plausible.
District Judge Edgardo Ramos denied motions to dismiss filed by Gemini crypto exchange and crypto lender Genesis in a U.S. SEC complaint submitted over an Earn program hosted by both firms until late 2022.
In a March 13 court order, Judge Ramos said that the SEC provided sufficient grounds to allege that Gemini and Genesis violated U.S. securities rules.
The ruling issued in a Southern District of New York courthouse cited the Howey Test and Reves Test, referenced by the commission, as adequate justification for qualifying the Earn program under existing securities rules.
At this stage, under both tests, the Court finds that the complaint plausibly alleges that Defendants offered and sold unregistered securities through the Gemini Earn program. As a result, Defendants’ motions to dismiss are denied.
Judge Edgardo Ramos
In the January 2023 lawsuit, SEC litigators argued that the crypto companies marketed this Earn product as an investment opportunity. Earn investors held profit expectations from the efforts of others, thus satisfying securities requirements according to the agency.
Genesis, in particular, has previously attempted to dismiss the SEC’s complaints, claiming Gemini’s Earn program operated under a loan creation model rather than securities contracts. The Digital Currency Group subsidiary also reached a $21 million settlement with the commission in a civil lawsuit.
Both firms have been the subject of multiple enforcement actions launched by American regulators, including the New York Attorney General’s (NYAG) office. NYAG Letitia James sued the three firms, Gemini, Genesis, and DCG, for $1 billion in a supposed crypto fraud scheme.
Naga Avan-Nomayo
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