The FTX collapse was the last straw or the tipping point for the Securities and Exchange Commission (SEC) to create a stir. By the end of 2022, SEC officials were warning crypto companies to prepare for a major battle. They emphasized that those who did not register with the organization would face the wrath of the SEC by 2023. Now, the SEC is doing everything in its power to make life a living hell for crypto companies.
SEC, FTX, and the Crypto War
Before we delve into Gemini’s latest move, let’s briefly recap how we got here. Terra collapsed, and then the crypto credit debt wheel broke. We experienced a chain reaction of collapses with the bankruptcy of crypto risk enthusiasts like Degen or smart money enthusiasts like 3AC. After that, the biggest domino, FTX, fell. Before it was revealed that FTX defrauded its investors, the founder of FTX was the most recognizable face of cryptocurrency in the US Congress. Everyone believed that FTX was the most regulated exchange in the country.
SBF came from a powerful family. Both his father and mother were academically successful, and they had significant political connections that should not be underestimated. Perhaps that’s why FTX exchange could be promoted as the most regulated crypto institution, rather than Coinbase, which is constantly audited as a public company.
The FTX collapse happened right in front of Gary Gensler and other Democratic officials. The SEC, which did not use even a fraction of its current sanctioning power on FTX back then, is now continuing its fight against crypto. Was this a surprise? Absolutely not, if you remember the high-level SEC officials admitting that 2023 would be a nightmare year for crypto companies.
SEC Unjust in Crypto Matter
According to court documents filed on August 18th in the US District Court for the Southern District of New York, Gemini stated that the SEC did not file a lawsuit against them with solid allegations and that the lawsuit should be dismissed. Furthermore, it was implied that the SEC’s confusion seemed like a cry to suppress its injustice.
“The fact that the SEC cannot decide what the security in question is only highlights its weakness.”
Additionally, Gemini argued that the court should not deal with the “complex analyses” presented by the SEC, but rather ask simple questions to determine whether it qualifies as a security. The lawsuit claims that Gemini Earn, a service that allows customers to lend their crypto assets like Bitcoin (BTC) to Genesis, violated security regulations by offering unregistered securities.
Gemini also stated that the SEC should first determine whether it is an unregistered security and then decide on the sale or offer of this security. Gemini wrote that the SEC failed to fulfill this requirement.
On August 19th, Jack Baugham, one of the founding partners of JFB Legal representing Gemini, claimed on Twitter that the SEC changed its argument while the case was ongoing.
“The SEC is struggling. They can’t even decide what the security is. On the one hand, they claim that the Credit Agreement is a security. On the other hand, they claim that the entire Gemini Earn program is a security themselves.”
