In an ongoing legal battle, the United States District Court for the Southern District of New York has denied motions brought by Genesis and Gemini to dismiss a case brought against it by the Securities and Exchange Commission (SEC). The ruling allows the case, in which the SEC alleges the two firms offered and sold unregistered securities products through the Gemini Earn program, to proceed.

The ruling, issued by Judge Edgardo Ramos, determined that the SEC’s complaint “plausibly alleges” that Gemini and Genesis may have breached securities laws in offering the Gemini Earn product to the general public without adequate registrations or risk disclosures. Specifically, Judge Ramos’ ruling held that, since Gemini Earn likely meets the criteria for an investment contract under the Howey Test, it could still be found to be a security in court.

The two firms requested that the court dismiss the case in May 2023, contending that the SEC had not convincingly shown that its Master Digital Asset Loan Agreement, which stood at the center of the case, qualified as a security. Wednesday’s ruling allows the question to proceed to court.

History of the Case

The SEC’s complaint against Genesis and Gemini is centered around the latter’s Earn program, which promised retail customers as much as 8% interest on tokens invested through the program. Before it ceased operations, the program had boasted approximately 340,000 retail users and $900 million in assets. However, Genesis, the lending partner for the Earn program, paused withdrawals on Nov. 16, 2022, after it proved unable to meet withdrawals as crypto markets were rocked by the collapse of FTX and Alameda Research. 

While the pause in withdrawals had been intended to be only temporary, Gemini terminated Earn altogether on Jan. 10, 2023. Two days later on Jan. 12, the SEC sued Gemini and Genesis for the unregistered offer and sale of securities through the Earn lending program, alleging the firms collected billions of dollars from investors—whose assets were now frozen—without properly disclosing the risks.

In February 2024, Gemini pledged to reimburse affected customers up to $1.1 billion. This commitment is part of a settlement with the New York State Department of Financial Services, which also includes a $37 million fine imposed on Gemini for lapses in due diligence and oversight. 

Read more: Victims’ Fund for Genesis Creditors Could Set a Major Precedent in Crypto Bankruptcy Cases, If Approved

As the case proceeds, it does so alongside a number of other high-profile lawsuits the SEC has brought against major players in the crypto industry. In addition to Gemini and Genesis, the SEC has also filed complaints of illegal securities offerings against Coinbase, Kraken, and Binance. While Binance has settled with several other U.S. regulatory agencies for multiple violations of anti-money laundering and sanctions laws, the SEC was not a party to the settlement and its securities violation case against Binance is proceeding.