By Michael Scott
Attorneys representing Gemini have petitioned the court to dismiss a case lodged by the US Securities and Exchange Commission (SEC). Gemini’s lawyers indicate that the Securities Agency failed to prove the allegations that it sold securities to the customers.
The embattled crypto exchange steered by the Winklevoss twins submitted to the federal court plea to dismiss the lawsuit filed by the SEC in January. The submission poked holes into the evidence presented by SEC as failing to establish a clear claim that Gemini sold unregistered securities.
SEC Relies Upon Inconsistent Theories in Suit Against Gemini
Gemini’s lawyers’ 15-page filing on Friday, August 18, attacked the argument advanced by SEC that the interest-earning Gemini Earn program alongside the loan program amounted to sales to the customers. The lawyers indicated that assessing the assertions by SEC reveals that the regulator cannot prove a case before the federal court.
The Gemini lawyers submitted that even if the court would assume that SEC in its argument, defined securities aided by either of the inconsistent theories, it failed to plausibly illustrate that such was sold or offered for sale.
The case traces to January 12 when SEC opened charges against Gemini alongside crypto lending firm Genesis selling unregistered securities to retail investors. SEC complaint indicated that Gemini Earn and the Master Digital Asset Loan Agreement (MDALA) constituted securities that were offered to 340000 investors.
Gemini lawyers admit that the debate on whether crypto tokens qualify as securities within the existing law remains a challenge bedeviling industry players. The majority acknowledges that the United States lacks regulatory clarity that the SEC can anchor their enforcement actions.
The lawyers decry the stance adopted by SEC’s chair Gary Gensley who repeatedly backs the existing law as clear. He indicates that the crypto companies’ refusal to comply with the law prompts them to initiate lawsuits against the offenders.
Gemini Earn and MDALA Not Offered for Retail Customers
Gemini’s lawyer’s submission portrays a gateway where Gemini Earn and MDALA could identify as securities. Nonetheless, the lawyers bitingly dismissed the notion that both were offered for sale to retail customers.
The crypto exchange legal team dismissed SEC’s argument that MDALA is a security. They added that the SEC erred in labeling loan agreements as securities. The lawyers indicated that a child operating a lemonade stand could ascertain sale and ownership. The child can know when transfers occur in the exchange of value.
MDALA Nonqualified to Carry Security Label
The lawyers used the illustration to demonstrate that assuming MDALA constitutes security, SEC failed to make plausible non-conclusory allegations of its sale or offer for sale.
The lawyers revisited the Gemini Earn though blunt in their counter criticism to the allegations that it counted as security. The SEC lacks a basis to qualify such programs as security.
The lawyers considered the claim as frivolous since the assertion by the securities watchdog. In particular, they disapproved of the assertion as one untethered from facts advanced in the complaint lacks relation to reality.
The Gemini Earn program promised customers they would earn high-interest rates on invested cryptos. The lawyers opposed the argument that earning interest on the tokens counts as a securities sale. They indicated that the tokens were borrowed assets returned on demand.
Gemini Embroiled in Legal Battle With Digital Currency Group
The submission by Gemini on Friday petitioning the court to dismiss the lawsuit comes when it is embroiled in a separate legal battle. The latter involves a petition by Genesis’s parent Digital Currency Group (DCG) filed a motion seeking the dismissal of the lawsuit initiated by Gemini.
The lawsuit alleges that DCG misled on the financial status of Genesis, only for it to plunge into Chapter 11 bankruptcy proceeding days after the lawsuit. The lawsuit comes after the sudden implosion of FTX, prompting Genesis to suspend customer withdrawals in November 2022.
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