In a significant turn of events, the Securities and Exchange Commission (SEC) has dismissed its civil action against Gemini Trust Company, LLC with prejudice. This decision signifies that the case is closed permanently and cannot be brought back to court.
The SEC's initial complaint, filed in January 2023 under Chair Gary Gensler, accused Gemini and Genesis Global Capital, LLC of offering and selling unregistered securities through the Gemini Earn program. The program allowed Gemini customers to loan their crypto assets to Genesis in exchange for interest. The SEC argued that the Gemini Earn program constituted an unregistered securities offering, bypassing disclosure requirements designed to protect investors. They alleged that Gemini marketed the Earn program as a low-risk investment while allegedly knowing that Genesis's financials were risky. The program offered high-interest rates, with Gemini touting returns "more than 100x the average national interest rate".
Under the Gemini Earn program, Gemini customers could loan their cryptocurrency to Genesis Global Capital, LLC, earning up to 7.4% APY. However, Genesis eventually faced financial difficulties and filed for bankruptcy, leaving Gemini Earn investors unable to withdraw their assets. As of January 12, 2023, investors were still unable to access their funds.
The dismissal comes after the SEC and Gemini reached "a resolution in principle". The decision to dismiss the action was made "in the exercise of its discretion," according to the SEC, and takes into account the "100 percent in-kind return of Gemini Earn investors' crypto assets," as well as state and regulatory settlements involving Gemini related to the Gemini Earn program. In addition to the SEC settlement, Gemini will return approximately $50 million worth of digital assets to Gemini Earn investors who were locked out of their accounts, as part of a settlement with the New York Attorney General.
The SEC's decision also "does not necessarily reflect the Commission's position on any other case". This dismissal is part of a broader trend within the SEC, where new leadership is signaling policy and priority changes. Under the leadership of Chairman Paul Atkins and Enforcement Director Judge Margaret Ryan, the SEC has shown a willingness to dismiss or close high-profile cryptocurrency matters initiated under the previous administration. This includes actions or investigations involving other major crypto firms like Coinbase and Binance. These policy resets reflect a more direct alignment of the agency's enforcement program with the broader policy goals of the Trump Administration.
The SEC has turned over a new leaf since President Donald Trump took office in January. Trump tapped crypto-friendly Paul Atkins to lead the agency, who has since launched "Project Crypto" to modernize its rules around digital assets. The regulator has also dropped lawsuits against major crypto firms, including Coinbase, Binance, and Ripple.
The dismissal of the Gemini case, with prejudice, marks a significant victory for the cryptocurrency exchange and signals a potential shift in the SEC's approach to regulating the digital asset space.
