According to Cointelegraph: A United States federal judge has ruled that the Securities and Exchange Commission's (SEC) lawsuit against crypto firms Gemini and Genesis can continue. The SEC alleges that these firms sold unregistered securities through Gemini Earn, a crypto yield-bearing product.
In a 32-page order given on March 13, Judge Edgardo Ramos of a New York District Court rejected Gemini and Genesis’s motions to dismiss the SEC’s suit. He also denied a separate request to prohibit the SEC from ceasing their security sales and ordering them to submit Gemini Earn profits if the SEC wins the suit.
Judge Ramos found that the SEC's allegations were plausible, stating that Gemini Earn met the specification of an investment contract under the Howey test, which provides a legal framework for defining securities. He added that Genesis's process of pooling assets rather than segregating them and lending them to institutional borrowers demonstrated an expectation of profits reliant on Genesis’s efforts.
The order supports the SEC's claim that the agreements of Gemini Earn could qualify as notes, a debt security requiring loan repayments with interest. However, the judge ruling that the lawsuit can proceed does not mean that the SEC guarantee a win. The regulator will still need to prove its case while all parties involved prepare to gather evidence.
Gemini Earn had roughly 340,000 customers and managed $900 million in assets as of November 2022, according to the SEC. The continuation of this lawsuit underlines the mounting regulatory scrutiny faced by crypto firms operating financial products resembling traditional securities.