Gemini Seeks SEC Lawsuit Dismissal, Citing Unfounded Charges

Jimmy Aki
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The Winklevoss twins’ crypto exchange Gemini has filed a response document in its effort to seek the dismissal of the lawsuit filed against it by the US Securities and Exchange Commission (SEC). In its argument, the exchange claims that the SEC has not proven that the securities sold by the exchange were unregistered.

Gemini Files Reply Brief Against SEC

In a dramatic turn of events, Gemini has officially moved to dismiss the lawsuit filed against it by the US Securities and Exchange Commission (SEC).

The SEC legal action claims that Gemini and Genesis mishandled client funds, citing problems related to Gemini Earn, along with a compulsory agreement called the Master Digital Asset Loan Agreement (MDALA) required for enrollment in the initiative.

However, Gemini, co-founded by Tyler and Cameron Winklevoss, has vehemently denied the allegations put forth by the regulatory body and is now seeking to challenge the foundation of the lawsuit.

On August 18, in response to the SEC’s allegations, Gemini’s legal team filed a motion to dismiss the lawsuit.

The exchange contended that the SEC’s ability to present a coherent assertion has been lacking. The filing emphasized that the comprehension of Section 5 of the securities act isn’t complex.

While asserting this, it argued that the SEC hasn’t distinctly outlined the prerequisites for establishing a breach of the act.

Gemini filing noted that the fact that the SEC cannot ascertain the specific security in question underscores the fragility of its stance.

It added that hence, to build its argument, the SEC needs to accomplish two key tasks. Firstly, it needs to pinpoint unregistered security. After identifying said security, it must identify the transaction involving the sale or the offer to sell.

According to Gemini’s legal representatives, John Baughman and John Nathanson, the claim that such a security was either sold or made available for purchase has not been credibly stated.

Additionally, they contended that the court shouldn’t engage with the intricate analyses presented by the SEC. Instead, the agency should pose uncomplicated queries to establish whether the subject qualifies as a security.

This prompted queries such as: When did the alleged security get sold? Who was the purchaser? Who was the vendor? What was the offered or charged price?

The filing pointed out that the SEC remains without responses to these queries, and the complaint doesn’t present any substantial claims on these aspects. As a result, the Plaintiff has faltered in presenting a valid assertion.

Gemini Battle With the SEC

In January 2023, the US regulator filed a complaint against Genesis, a digital assets-focused financial services firm for institutional investors, and Gemini.

SEC accused Genesis of combining digital assets from investors participating in Gemini’s interest-generating investment service, Gemini Earn, with funds from other clients in a rather intricate and supposedly inappropriate lending scheme.

Both companies allegedly violated federal financial regulations, partly due to this arrangement.

According to SEC, this arrangement involved a substantial amount of digital assets, primarily sourced from US retail investors, and resulted in numerous unregistered cryptocurrency securities.

The majority of the SEC’s complaint revolves around assertions that both Genesis and Gemini inflicted significant harm on retail customers.

Genesis is said to have been involved in crypto asset transactions primarily with large institutional and accredited investors. The SEC noted that social media campaigns by Genesis and Gemini increased retail exposure and accentuated risks for investors.

Reportedly, Genesis used these assets by lending them to the same institutional borrowers, aiming to generate revenue.

The SEC noted that it remains unclear whether these alleged activities intensified in line with the ongoing downturn in the cryptocurrency market.

As detailed in the complaint, these actions also encompassed revenue required to provide interest to Gemini investors, the original funding source.

According to SEC’s statement, hundreds of thousands of investors were impacted by these events.

On the matter, SEC chief Gary Gensler tweeted, “Crypto intermediaries must adhere to our securities laws.”

He stressed that this compliance is essential for safeguarding investors, instilling market confidence, and is not a matter of choice but a legal obligation.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.