Gemini, the US-based crypto exchange founded by the Winklevoss twins, Tyler and Cameron, has filed a motion to dismiss the lawsuit brought against it by the US Securities and Exchange Commission (SEC). The SEC announced charges against Gemini and Genesis, a crypto-lending platform, in January 2023.
The SEC’s lawsuit against Gemini revolves around its Earn program, which was launched in February 2021. According to the SEC, these platforms illegally sold unregistered securities through a program that promised high-interest rates to hundreds of thousands of investors under a Master Development and Loan Agreement (MDALA).
The SEC claimed that Genesis held around $900 million in assets from approximately 340,000 Gemini Earn customers.
The Earn program allowed customers to lend their cryptocurrencies to Genesis in exchange for interest. Gemini acted as an agent between its customers and Genesis and received a small percentage of fees up to 4.29% for its services. However, the program was halted in November 2022 and was ultimately terminated in January 2023, before the SEC’s lawsuit.
Gemini has enlisted the services of JFB Legal, a law firm, to represent them in their battle against the SEC. Jack Baughman, the founding partner of JFB Legal, criticized the SEC’s lawsuit as “ill-conceived”.
Gemini’s motion to dismiss argues that the Earn program was not a securities offering. Gemini’s brief contends that the SEC’s claims have no basis in law or fact and highlights the lack of information regarding the supposed sale or terms of the MDALA.
The motion to dismiss is based on two main points. Firstly, Gemini asserts that the MDALA is neither a security note nor an investment note. Secondly, even if the SEC could reasonably consider the MDALA security, it fails to provide evidence that it was sold or offered to anyone.
The case is titled SEC v Gemini Trust Co et al and is being heard in the US District Court for the Southern District of New York, case number 23-00287.