Cryptocurrency exchange Gemini and bankrupt digital asset lender Genesis Global Capital have jointly filed for the dismissal of a Securities and Exchange Commission (SEC) lawsuit. The lawsuit alleges that “Gemini Earn” – which allowed customers to lend crypto assets such as Bitcoin (BTC) to Genesis, with Gemini taking a commission of up to 4.29% – violated securities laws by offering unregistered securities.
The companies’ legal documents maintain that Gemini Earn should not be classified as a security. Genesis argued that the transactions were essentially loans and asked the court to dismiss the lawsuit or, alternatively, to deny the SEC’s motions for a permanent injunction and restitution.
In addition, the indictment claimed that Gemini, and not Genesis, was responsible for customer-related aspects of the Earn program. Gemini, which has declared her role as transfer agent for Earn, slammed the SEC’s lawsuit as “ill-conceived” in a blog update aimed at Earn users.
Following the SEC’s lawsuit in January, Genesis subsequently filed for bankruptcy, leading Earn users to face withdrawal restrictions from mid-November 2022. In response, Gemini filed a global claim on Monday the 22nd. May, with the goal of recovering more than $1.1 billion in assets for 232,000 Earn users.
Gemini and Genesis parent company Digital Currency Group (DCG) are negotiating a restructuring and liquidation agreement through mediation. A preliminary February deal has yet to close and earlier this month DCG defaulted on a $630 million loan to Genesis.
At the same time, Gemini and other creditors are collaborating on a “modified plan of reorganization” that can be carried out independently if the mediation process fails. The goal is to ensure an optimal result for Earn users, the exchange states in the blog post.
In a TweetJack Baughman, a founding partner at JFB Legal, which represents Gemini, said the SEC case is only making it more difficult and complicated to recover assets from the Genesis bankruptcy to pay users of the Earn program. It does nothing to speed up the process and unlock the assets that need to be returned to users.
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