The lawsuit alleges that the product violated securities regulations by offering unregistered securities. In their legal filings, the companies argued that the Earn product should not be classified as a security and contended that the transactions were essentially loans. They urged the court to dismiss the complaint or alternatively strike the SEC's requests for a permanent injunction and disgorgement.
Gemini, as the transfer agent for Earn, claimed responsibility for the customer-facing aspects of the program. The company criticized the SEC lawsuit as "ill-conceived" in a blog update addressed to Earn users. Following the SEC's lawsuit in January, Genesis filed for bankruptcy, leading to withdrawal restrictions for Earn users since mid-November. Gemini takes action to retrieve $1.1 billion in assets for 232,000 Earn users.
Gemini, Genesis, and Digital Currency Group (DCG), the parent company, are currently engaged in mediated negotiations to reach a restructuring and settlement agreement. Although a preliminary deal was proposed in February, it has not been finalized. Additionally, DCG missed a $630 million loan payment to Genesis earlier this month.
Gemini and creditors develop a backup plan for Earn users if mediation fails. "Amended plan of reorganization" ensures optimal outcome, per Gemini's blog.
However, the SEC's lawsuit is complicating the asset recovery process from the Genesis bankruptcy and making it more challenging to make Earn users whole, according to Jack Baughman, a founding partner of JFB Legal who is handling the case. Baughman highlighted that the lawsuit does nothing to expedite the process or unlock assets that need to be returned to Earn users.
The situation remains ongoing as Gemini, Genesis, and DCG continue their negotiations and legal proceedings. The outcome of these discussions and potential resolution of the SEC lawsuit will determine the fate of the Earn product and the recovery of assets for its users.
