The Securities and Exchange Commission (SEC) has unexpectedly dropped its lawsuit against crypto exchange Gemini, founded by Cameron and Tyler Winklevoss. The dismissal, filed jointly with Gemini on Friday, resolves a case stemming from the failure of the Gemini Earn program, which left investors unable to access funds for over a year and a half. This decision arrives amid growing scrutiny of potential political influence within the SEC’s enforcement actions regarding the cryptocurrency industry.
The SEC’s lawsuit, filed in January 2023, alleged that Gemini and Genesis Global Capital, a now-bankrupt crypto lender, sold unregistered securities to investors through the Earn program. Investors deposited crypto assets with Gemini, which then lent those assets to Genesis, earning interest. When Genesis faced financial difficulties and halted withdrawals, investors were left unable to redeem their holdings. The case centered on whether Gemini properly informed investors about the risks involved.
SEC Drops Gemini Lawsuit: A Shift in Crypto Enforcement?
The SEC and Gemini jointly requested the court to dismiss the case, citing a recent settlement reached between Gemini and the New York Attorney General’s office. That settlement, finalized in February 2024, ensured that investors in the Gemini Earn program would receive 100% of their loaned crypto assets. According to the joint filing, this resolution addresses the concerns raised in the SEC’s original complaint.
However, the timing of the SEC’s decision has raised eyebrows. The New York Times reported earlier this month that, since Donald Trump took office in January 2024, the SEC has either dismissed, paused, or reduced penalties in over 60% of pending digital asset lawsuits. This trend suggests a potential softening of the SEC’s stance towards the crypto industry under the current administration.
Political Connections and Potential Influence
The Winklevoss twins, founders of Gemini, are known donors to Donald Trump’s political campaigns. Public records show they contributed to Trump’s 2016 and 2020 presidential bids, and also financially supported ventures associated with the Trump family. This history has fueled speculation about potential political influence in the SEC’s decision to drop the lawsuit.
Additionally, the SEC’s previous aggressive enforcement actions against crypto firms, under the leadership of former Chair Gary Gensler, had created a tense relationship with the industry. Gensler consistently argued that most crypto tokens qualified as unregistered securities, requiring strict regulatory compliance. The current shift in approach appears to signal a departure from that stance.
Gemini Earn Program and Investor Impact
The Gemini Earn program attracted significant investor interest, promising high yields on deposited crypto assets. However, the program’s reliance on Genesis, which ultimately filed for bankruptcy in January 2023, proved to be its downfall. Investors were left in a precarious position, facing prolonged uncertainty about the recovery of their funds.
The New York Attorney General’s lawsuit against Gemini, filed in October 2023, mirrored many of the SEC’s allegations, accusing the exchange of misleading investors about the risks associated with the Earn program. The settlement with New York Attorney General Letitia James was a crucial factor in the SEC’s decision to seek dismissal, as it provided a concrete resolution for affected investors.
The resolution of the Gemini Earn issue is a significant win for the company, which has been working to rebuild trust with its user base. Gemini has also filed paperwork to pursue an initial public offering (IPO), and resolving the SEC lawsuit removes a major obstacle to that process. The company aims to become a publicly traded entity, potentially opening up new avenues for capital and growth.
Meanwhile, the broader implications of the SEC’s changing approach to crypto enforcement remain to be seen. Industry observers are closely watching for further shifts in the agency’s priorities and whether other pending cases will meet a similar fate. The SEC’s actions will likely shape the future regulatory landscape for blockchain technology and digital assets.
The court must still formally approve the dismissal of the SEC’s lawsuit against Gemini. A hearing date has not yet been set. The SEC has not publicly commented on the reasons behind its decision beyond referencing the New York settlement. Investors and industry participants will be monitoring the court proceedings and any further statements from the SEC for additional clarity on this evolving situation.
