- Gemini filed a motion to dismiss SEC’s lawsuit, which centers on its Earn program
- The crypto exchange claimed that its program was not a security and argues that the SEC fails to prove its point
Gemini – a leading American-based crypto exchange – filed a motion to dismiss the US Securities and Exchanges Commission (SEC) lawsuit. The SEC announced its charges against Gemini and Genesis – a crypto-lending platform in January 2023. The SEC claimed that these platforms offered securities to retailers without properly registering, and thereby violated the law.
Gemini’s response to SEC’s action
According to the latest developments, the American crypto exchange onboarded JFB Legal for its faceoff with the US regulator. Jack Baughman – the founding partner of JFB Legal – called SEC’s lawsuit “ill-conceived” in a Twitter thread. The commission’s lawsuit against Gemini centers on its Earn program, which was launched in February 2021. The commission claimed that this was an unregistered securities offering and further stated that it was investigating other securities violations.
The program allowed customers to lend their crypto to Genesis in exchange for interest on their lending. And, Gemini received a small percentage of fees for acting as an agent between its customer and Genesis. However, the program came to a halt in November 2022 after Genesis could not match the redemption demand.
Furthermore, it was eventually terminated altogether in January 2023, before SEC’s lawsuit, in order to end its agreement with Genesis, which had taken a huge hit from FTX collapse.
Gemini’s motion to dismiss brief stated that the program was not a securities offering. This is because the commission claims that the MDALA agreement, which makes Gemini the agent, was an unregistered security.
The brief further said, “This has no basis in law or fact. Further, the Complaint never explains how, when, or where the MDALA was supposedly sold, or on what terms.”
Speaking on SEC’s unregistered securities offering claim, Baughman said,
“The SEC claims that the contract setting up the Earn program was itself a security. Even if that were right—it’s not—the SEC then would have to show that the contract was sold. That never happened.”
The crypto exchange has moved to dismiss the lawsuit on two main bases. The first reason is that the MDALA is neither a security note nor an investment note. The second reason is that even if the commission had reasonably claimed MDALA to be a security, it fails to prove that it was sold or offered to anyone. Baughman said,
“The brief makes a simple point. Whatever the Earn contract might be, it was never sold. Who was the seller? Who was the buyer? How much did it cost? Could it be resold? Everyone knows what a sale is. It’s obvious there was not one here. The point is simple but powerful.”