Caught in the crosshairs of a contentious lawsuit, cryptocurrency exchange Gemini is urging a federal judge to reject a case filed by the Securities and Exchange Commission (SEC) in January. The bone of contention? Gemini argues that the SEC failed to establish a convincing case accusing it of selling unregistered securities.
Gemini’s Legal Counterattack
In a comprehensive 15-page filing submitted last Friday, Gemini’s legal team launched a counteroffensive against the SEC’s assertion that its interest-earning program, Gemini Earn, and a separate loan program were in fact sales to customers. They maintain that the SEC’s current evidence is insufficient to substantiate its case in court.
“Even assuming for the sake of argument that SEC has somehow described a security (under either of its inconsistent theories), it has not plausibly alleged that such security was ever sold or offered for sale,” the Gemini legal team argued.
The SEC’s Accusations
Earlier this year, the SEC took legal action against Gemini and crypto lender Genesis, alleging they sold unregistered securities to retail investors. In their complaint, the SEC specifically identified Gemini Earn and the company’s Master Digital Asset Loan Agreement (MDALA) as securities offered to as many as 340,000 investors.
The classification of crypto tokens as securities under existing law has been a source of contention among industry stakeholders. They argue that the SEC’s regulatory guidance is unclear and overly reliant on enforcement actions. SEC Chairman Gary Gensler and the commission, however, assert that the law is clear, and it’s the refusal of crypto companies to comply that sparks these lawsuits.
Gemini’s Defense
In their defense, Gemini’s lawyers did not rule out the possibility that Gemini Earn or MDALA could be classified as securities, but they vehemently denied that they were being sold to customers.
They contend that the loan agreements under MDALA were not “offered and sold” to customers in a manner that would qualify as a securities sale under the law. They also labeled the SEC’s arguments to the contrary as “fundamentally inconsistent.”
For the Gemini Earn program, the lawyers were even more critical of the SEC’s claims that the program itself constituted a security, something they said bore “no relation to reality.”
Through the Gemini Earn program, customers were promised high interest on cryptocurrencies invested in it. The Gemini legal team argued that earning interest on invested tokens did not constitute a securities sale, but were borrowed assets that could be returned on demand.
As the legal tussle intensifies, Gemini’s move to dismiss the lawsuit comes amid a separate legal conflict with Genesis’ parent company Digital Currency Group (DCG). DCG recently urged a federal judge to reject a lawsuit from Gemini alleging that it had been misled about Genesis’ financial health, which filed for Chapter 11 bankruptcy shortly after the SEC’s lawsuit against the two.
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