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 that “Gemini Earn” violated securities regulations by offering unregistered securities. Gemini Earn let customers lend crypto assets such as Bitcoin (BTC) to Genesis, with Gemini taking a fee as high as 4.29%. The companies contend that their Earn product, which facilitated coin lending for yield generation, should not be classified as a security, and requested the court to dismiss the complaint or strike the SEC’s requests for a permanent injunction and disgorgement.
Genesis further argued that the transactions were essentially loans, and Gemini was responsible for the customer-facing aspects of the Earn program. Gemini, which asserted its role as a transfer agent for Earn, criticized the SEC lawsuit as “ill-conceived” in its 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. In response, Gemini filed a comprehensive claim on Monday, May 22, aiming to recover over $1.1 billion in assets for the benefit of 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.
Throughout this month, Gemini, Genesis, and DCG have engaged in mediated negotiations to reach a restructuring and settlement agreement. While a preliminary deal was proposed in February, it has not been formally concluded. Additionally, earlier this month, DCG failed to make 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 their blog post.
In a tweet, Jack Baughman, a founding partner of JFB Legal who is in charge of the case, said the SEC’s case is only making it harder and more complicated to retrieve assets from the Genesis bankruptcy and make Earn users whole. It does nothing to speed up the process and unlock assets that need to be returned to Earn users.
The cryptocurrency industry is fighting back against unfair SEC allegations that are harming investors and stifling innovation. In a landmark case, Coinbase has been actively pushing for the SEC to respond to its rulemaking petition, which argues for better clarity and regulations in the industry.
The SEC’s lawsuit against Gemini and Genesis comes at a time of heightened uncertainty and volatility in the cryptocurrency market. While the lawsuit has caused concern among investors, there is hope that a resolution can be reached that benefits everyone involved.
In conclusion, the cryptocurrency industry is a complex and rapidly evolving space that requires careful consideration and regulation. While there are legitimate concerns around security and regulatory compliance, there is also a need for innovation and growth in the industry. By working together, stakeholders can find solutions that balance these competing demands and create a thriving and sustainable ecosystem for the future.