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A US judge found a lawsuit alleging securities violations by crypto companies Gemini and Genesis plausible.
District Judge Edgardo Ramos denied motions to dismiss filed by crypto exchange Gemini and crypto lender Genesis in a US SEC complaint filed over an Earn program run by both companies through the end of 2022.
In a March 13 court order, Judge Ramos said the SEC provided sufficient grounds to allege that Gemini and Genesis violated U.S. securities rules.
The ruling issued in a court in the Southern District of New York cited the Howey test and the Reves test, which the commission references, as adequate justification for qualifying the Earn program under existing securities rules.
At this stage, under both tests, the Court finds that the complaint plausibly alleges that defendants offered and sold unregistered securities through the Gemini Earn program. As a result, defendants' motions to dismiss are denied.
Judge Edgardo Ramos
In the January 2023 lawsuit, SEC litigants argued that crypto companies were marketing this Earn product as an investment opportunity. Earn investors had expectations of profits from the efforts of others, thus satisfying securities requirements according to the agency.
Genesis, in particular, has previously attempted to dismiss SEC complaints, alleging that Gemini's Earn program operated under a loan origination model rather than securities contracts. The Digital Currency Group subsidiary also reached a $21 million settlement with the commission in a civil lawsuit.
Both firms have been the subject of multiple enforcement actions brought by US regulators, including the New York Attorney General's (NYAG) office. NYAG Letitia James sued the three companies, Gemini, Genesis, and DCG, for $1 billion in an alleged crypto fraud scheme.
