Cryptocurrency exchange, Gemini, is seeking dismissal of a lawsuit filed against it by the U.S. Securities and Exchange Commission (SEC). In a recent plea to the New York court, the firm counters that the case is fundamentally flawed and merits dismissal.
The SEC’s lawsuit accuses Gemini and its partner Genesis of violating securities laws through their Gemini Earn program. This program enabled users to earn interest by lending their crypto assets. After Genesis declared bankruptcy and halted all withdrawals from Earn in November 2022, Gemini ceased the service entirely in January. The firms then agreed to a $100 million settlement to reimburse user funds.
SEC’s Chairman Larry Gensler emphasizes the necessity of consumer protection, arguing that Gemini and Genesis offered unregistered securities to the public via their platform. Gensler insists that crypto lending platforms must adhere to existing securities laws to safeguard investors and foster market trust.
On the contrary, Gemini contends that the SEC’s argument of the Earn program operating as a securities sale is inaccurate. The firm alleges the SEC is overreaching its jurisdiction and their claim is an unprecedented extension of the relevant legal interpretation.
The lawsuit’s crux is the exact relationship between Gemini, Genesis, and the individual users of Earn. A Master Digital Asset Loan Agreement (MDALA) outlined this relationship: Genesis was the borrower, users were lenders, and Gemini acted as a middleman and custodian. Gemini argues that the MDALA didn’t necessitate borrowing or lending but merely facilitated agreements between lenders and borrowers.
Gemini claims the SEC hasn’t provided adequate details about how the MDALA was supposedly sold as a security, suggesting a potential invalidation of SEC’s accusations if the court supports Gemini’s stance.
As SEC continues its stringent scrutiny of digital assets, Gemini is mulling shifting operations overseas. Co-founders Cameron and Tyler Winklevoss are exploring relocation to London following discussions with the U.K.’s financial regulator. Cameron Winklevoss cites regulatory hurdles in the U.S. as a reason for potential relocation, although he dismissed the idea of a complete U.S. market exit.
This coincides with Gemini’s announcement of plans to establish a new European headquarters in Dublin, indicating the firm’s growing global expansion and possible shift away from the U.S. market.
