SEC Case Against Gemini And Genesis Gains Momentum As Judge Denies Motion To Dismiss


In a recent development, US District Judge Edgardo Ramos has denied motions from cryptocurrency exchange Gemini and crypto lender Genesis to dismiss the case brought by the US Securities and Exchange Commission (SEC). 

The SEC alleges that both companies offered and sold “unregistered securities” through the Gemini Earn program. The court order, issued in the US District Court for the Southern District of New York on Wednesday, maintains that the complaint sufficiently alleges the sale of unregistered securities and denies the defendants’ motions to dismiss the case.

Court Finds ‘Plausible’ Allegations Of Unregistered Securities

The SEC’s case is based on two independent theories put forth by the commission. Firstly, it argues that the Gemini Earn program qualifies as an investment contract under the Howey test. 

The Howey test defines an investment contract as a contract or scheme where individuals invest money in a common enterprise and expect profits solely from the efforts of others. The court finds that, at this stage, the complaint “plausibly alleges” that Gemini and Genesis offered and sold unregistered securities through the Gemini Earn program.


The court order further explains that “horizontal commonality” is “crucial” to establishing a common enterprise in the context of an investment contract. 

According to the judge’s order, horizontal commonality is established when the fortunes of individual investors are tied to the overall success of the enterprise through the pooling of assets and the sharing of profits. 

The SEC alleges that Gemini aggregated crypto assets from Gemini Earn investors and pooled them on Genesis’ balance sheet rather than segregating the various assets. Genesis then lent these assets to institutional borrowers and used the interest received to pay Gemini Earn investors. Judge Ramos found that these allegations support an inference of horizontal commonality in this case

Additionally, the court order highlights the second theory proposed by the SEC, which asserts that the Gemini Earn agreements qualify as notes under the Reves v. Ernst & Young (1990) ruling. 

The Reves test considers whether purchasers buy notes with the expectation of earning a profit in the form of interest. In this regard, the court asserts that Gemini Earn investors were “motivated” by the opportunity to earn interest because Gemini advertised the program, and the company allegedly offered some of the highest interest rates in the market. 

The Court finds the SEC’s argument persuasive and emphasizes that profit includes earning interest in the context of notes.

Case Against Gemini And Genesis Moves Forward

The court order also addresses the defendants’ argument that the “sale” or “offer to sell” requirement is not met since the Gemini Earn agreements themselves did not involve the exchange of assets. 

However, the court asserts that the analysis should consider the entire transaction or scheme rather than solely focusing on the agreements. In this case, the overall offering and sale of the alleged securities are evaluated, considering the understanding, transactions, and undertakings between the parties.

Consequently, Judge Ramos denied the defendants’ motions to dismiss the case and their alternative motion to strike the SEC’s request for permanent injunctive relief and disgorgement. 

The court order affirms that the complaint presents plausible allegations regarding selling unregistered securities through the Gemini Earn program.

This ruling has implications for the cryptocurrency industry, highlighting the SEC’s continued scrutiny of crypto-related activities and its ongoing enforcement actions to comply with alleged securities regulations. The case will continue, and the outcome will likely significantly impact similar programs and offerings in the crypto space. 

The 1-D chart shows the total crypto market cap’s valuation trending upwards. Source: TOTAL on

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