Gemini and Genesis have asked a judge to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC) over the Earn product. The lawsuit was filed in January 2023 and alleged that the two firms offered unregistered securities and bypassed disclosure requirements. Gemini offered Earn in partnership with Genesis Global Capital, allowing users to earn interest on their crypto deposits as the providers re-invested those assets. Genesis forced Earn to halt withdrawals in November 2022, and Gemini permanently closed the service on January 10, 2023.
In a recent filing, Gemini argued that the Earn offer was nothing more than a lending arrangement and the contracts were not sold on a secondary market. As a result, lending agreements engaged in by Gemini and Genesis do not constitute securities. Jack Baughman, a lawyer for Gemini, wrote that the SEC would have to show that the contract was sold, which never happened.
Genesis’ lending arm filed for bankruptcy on January 19, 2023, which has affected Gemini’s ability to obtain funds owed to former Earn users. Gemini recently claimed that Genesis’s parent company missed a $630 million payment. Baughman acknowledged these issues, noting that Genesis’ bankruptcy is “dragging on” and the SEC case will only make compensating Earn users more difficult.
Gemini and Genesis have asked the court to dismiss the complaint with prejudice. Genesis has also filed a similar motion to dismiss the case. The SEC has alleged that the contract setting up the Earn program was itself a security, but Gemini and Genesis argue that it was simply a lending arrangement and thus not a security. The case is ongoing, and Earn users were owed up to $900 million in January.