Lawsuits from law enforcement agencies have become more prevalent than ever in the crypto industry. The Securities and Exchange Commission [SEC] went on slapping lawsuits across the industry. In line with this trend, the SEC filed a lawsuit against Gemini, a major crypto exchange, in January 2023, specifically targeting Gemini’s yield-bearing product, Earn. However, in a recent revelation, Gemini has taken a new approach by urging the court to dismiss the SEC’s lawsuit.
In addition to Gemini, bankrupt crypto lender Genesis was also dragged into the lawsuit. The lawsuit alleges that the Earn program was an unregistered offering. Through this, the two firms raised billions of dollars worth of crypto assets from hundreds of thousands of users. The SEC’s claims revolve around the alleged breach of registration requirements. The solicitation of investments without the proper regulatory oversight was also pointed out.
In the latest filing, Gemini was seen trying to dismiss these claims. The exchange noted that in the Earn program, “the borrower and lender could choose to engage in subsequent transactions.” Therefore, “it did not itself require any lending or borrowing by any party, and there was no way for a lender to transfer or assign it without the affirmative consent of all parties.”
SEC’S allegations have “no basis in law or fact”
Gemini has countered the SEC’s allegations by asserting that the regulatory authority’s characterization of the tri-party Master Digital Asset Loan Agreement [MDALA] contract as unregistered security is baseless and lacks a legal or factual basis. Gemini argued that the MDALA contract should not be viewed as a security under current laws.
The exchange noted that the SEC did not “adequately plead” that MDALA was a security. In turn, it failed “to make non-conclusory allegations that the MDALA was sold to anyone, or that any party offered to sell it.”
Additionally, Gemini and Genesis recently made news after the latter missed a $630 million payment. Furthermore, it looks like this case could take several directions ahead.