The cryptocurrency exchange Gemini has filed a motion in the United States District Court for the Southern District of New York, challenging the allegations put forward by the Securities and Exchange Commission (SEC).
This motion marks a new step in a legal war between the SEC and Gemini concerning the alleged sale of unregistered securities.The company, founded by the Winklevoss twins, Cameron and Tyler, in 2015, first drew the SEC’s ire for selling unregistered securities back in January.
Gemini Says the SEC Can’t Prove Two Key Points
The dispute turns largely on Section 5 of the Securities Act, which prohibits the sale or offering for sale of unregistered securities. In its motion, Gemini contends that the SEC’s case hinges on two claims it cannot prove. One is the identification of an unregistered security. The second is the sale or offer to sell that security.
Gemini’s motion states that the SEC has failed to fulfill these evidentiary requirements in its complaint.
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The legal saga first kicked off on January 12, when the SEC accused Gemini of selling unregistered securities. The regulator maintains that Gemni offered at least two unregistered securities. These were the Master Digital Asset Loan Agreement (“MDALA”) and the Gemini Earn program.
For its part, Gemini disagrees and believes the SEC hasn’t come close to providing proof.
“Even assuming for the sake of argument that SEC has somehow described a security (under either of its inconsistent theories), it has not plausibly alleged that such security was ever sold or offered for sale,” reads the 15-page motion.
According to the motion, the heart of the issue lies in the SEC’s inability to plausibly allege that a sale took place. Gemini argues that the SEC has not provided enough evidence or non-conclusory allegations to establish that any of the transactions under question involved the transfer of ownership of securities for value.
Moreover, Gemini’s lawyers argue that for a sale to have taken place, there would need to be a transfer of title and ownership.
The SEC Formally Accused Gemini in January
Gemini asserts that the SEC’s case does not meet the widely accepted definition of a sale. In the company’s view, the lawyers’ claim is gospel: a sale must involve the transfer of title and ownership for value.
Moreover, the motion contends that the SEC’s allegations fail to meet the standard of plausibility required in legal proceedings.
The cryptocurrency exchange attempted to have the suit thrown out in May of this year. It argued that its interpretation of Gemini Earn as a security was beyond any reasonable reading of the law.
Regardless of how the court battle pans out, it’s unlikely Gemini will be returning to the United States any time soon. Alongside many of its rivals, the exchange confirmed it was leaving the country in April.
Bittrex, another large cryptocurrency exchange, made the same move in March. Many similar businesses feel the SEC’s legal strategy has lacked nuance and is deliberately picking a fight with the industry.
Indeed, Gemini is far from the only exchange in the SEC’s firing line. In the first week of June, the financial regulator filed two suits against Coinbase and Binance, the industry’s two largest exchanges.
Like Gemini, they stand accused of breaking numerous securities laws. All deny the allegations.
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