Gemini and Genesis have requested the dismissal of the Securities and Exchange Commission’s (SEC) lawsuit regarding their Earn product. The SEC had alleged that the contract setting up the Earn program was a security, but Gemini’s lawyer, Jack Baughman, has argued that the contract was never sold and therefore does not constitute a security.
Earn Offered Lending Arrangement
Gemini partnered with Genesis Global Capital to offer Earn, which allowed users to earn interest on their crypto deposits. However, in its latest filing, Gemini stated that the offer was nothing more than a lending arrangement. The contracts were not sold on a secondary market, and as a result, the lending agreements do not constitute securities.
Genesis Bankruptcy Affects Earn Users
Genesis Global Capital’s lending arm filed for bankruptcy in January 2023, which has affected Gemini’s ability to obtain funds to compensate former Earn users. Gemini has stated that Genesis’s parent company missed a $630 million payment. Baughman acknowledged these issues by noting that Genesis’ bankruptcy is “dragging on,” and the SEC case will only make compensating Earn users more difficult.
Earn Users Owed $900 Million
Earn users were owed up to $900 million in January. Genesis forced Earn to halt withdrawals in November 2022, and Gemini permanently closed the service on January 10, 2023. The SEC filed charges against Gemini and Genesis on January 12, alleging that the firms offered unregistered securities and bypassed disclosure requirements.
Gemini and Genesis have requested the dismissal of the SEC lawsuit concerning their Earn product. The companies have argued that the contract for the Earn program was not sold on a secondary market and therefore does not constitute a security. Gemini has stated that the offer was nothing more than a lending arrangement. The bankruptcy of Genesis Global Capital’s lending arm has affected Gemini’s ability to compensate former Earn users, and the SEC case will only make this more difficult. Earn users were owed up to $900 million in January.