A recent ruling by a U.S. judge has found a lawsuit alleging securities violations by popular crypto companies Gemini and Genesis to be plausible. District Judge Edgardo Ramos denied motions to dismiss filed by both firms in response to a U.S. SEC complaint over their Earn program. The lawsuit is set to continue until late 2022.

In a court order issued on March 13, Judge Ramos acknowledged that the SEC had provided sufficient grounds to suggest that Gemini and Genesis may have violated U.S. securities regulations. The court cited the Howey Test and Reves Test, which are recognized benchmarks used by the commission, as supporting evidence for considering the Earn program to fall under existing securities regulations.

The court found that, based on these tests, the complaint plausibly alleges that both companies offered and sold unregistered securities through the Gemini Earn program. Therefore, the motions to dismiss filed by the defendants were denied.

In a related development, a lawsuit filed by the SEC in January 2023 argued that the crypto companies marketed the Earn product as an investment opportunity. Investors in the Earn program were said to have held profit expectations from the efforts of others, meeting the criteria for securities requirements as per the SEC.

Genesis had previously attempted to dismiss the SEC’s complaints by suggesting that Gemini’s Earn program operated under a loan creation model rather than securities contracts. However, the Digital Currency Group subsidiary later reached a $21 million settlement with the commission in a civil lawsuit.

Both Gemini and Genesis have faced scrutiny from American regulators, including the New York Attorney General’s (NYAG) office. NYAG Letitia James filed a lawsuit against the three firms – Gemini, Genesis, and DCG – alleging a $1 billion crypto fraud scheme.

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