Introduction
The SEC and Gemini have reached a preliminary settlement to resolve their long-running lawsuit over the exchange’s Earn program. This development signals a potential shift in U.S. regulatory approach toward crypto lending products. The agreement still requires final approval by the commission before becoming official.
Key Points
- The Earn program attracted approximately $900 million across 340,000 accounts before Genesis's bankruptcy froze user funds
- Gemini has pledged to return roughly $1.1 billion to program participants, contingent on Genesis's restructuring outcome
- The case has been closely watched as a test case for how U.S. regulators approach yield-bearing digital asset products
Three-Year Legal Battle Nears Resolution
The U.S. Securities and Exchange Commission and Gemini Trust have reached a ‘resolution in principle’ to end their nearly three-year legal battle, according to a filing in the U.S. District Court for the Southern District of New York. Lawyers for both parties requested that ongoing litigation be stayed indefinitely, with a commitment to update the court if the matter isn’t resolved by December 15. The agreement marks a significant milestone in a case that began in January 2023 when the SEC accused Gemini and its partner, Genesis Global Capital, of offering unregistered securities through the Earn program.
The preliminary settlement represents one of the final steps in winding down this high-profile dispute that has captivated the cryptocurrency industry. If approved by the commission, it would address the central allegation that the Winklevoss brothers’ firm failed to register its crypto-lending product before marketing it to retail investors. This development follows earlier signals from the SEC that it wouldn’t pursue additional enforcement actions against Gemini in a separate investigation.
The Rise and Fall of Gemini's Earn Program
Gemini’s Earn program, introduced in 2021, allowed U.S. retail investors to deposit Bitcoin and other cryptocurrencies with promises of up to 7.4% annual returns. The product quickly gained traction, attracting approximately $900 million across 340,000 accounts by late 2022. The SEC’s complaint alleged that Gemini and Genesis failed to properly register the offering under U.S. securities laws, exposing investors to unrecognized risks that ultimately materialized when Genesis filed for bankruptcy.
The collapse of the Earn program coincided with broader market turmoil in 2022, leaving users locked out of their funds. Gemini has since pledged to return roughly $1.1 billion to program participants, though this remains contingent on the outcome of Genesis’s restructuring process. The case highlights the significant risks associated with crypto lending products that operate outside traditional regulatory frameworks.
Broader Implications for Crypto Regulation
For the cryptocurrency sector, the Gemini case has served as a critical test case for how U.S. regulators approach yield-bearing digital asset products. The resolution may mark a shift in regulatory tone, with the SEC potentially signaling an intention to establish clearer rules around crypto lending rather than pursuing open-ended enforcement actions. This approach could provide much-needed regulatory clarity for exchanges and investors alike.
The settlement follows a separate $21 million agreement between the SEC and Genesis reached in February 2024, which narrowed the scope of the regulator’s enforcement push. Together, these developments suggest a more structured approach to resolving crypto regulatory disputes. However, the case underscores the persistent compliance risks that exchanges face when offering products resembling securities without formal registration, particularly in the rapidly evolving digital asset landscape.
As the United States continues to grapple with cryptocurrency regulation, the Gemini settlement could establish important precedents for how existing securities laws apply to innovative financial products. The outcome may influence how other exchanges structure their yield-generating offerings and whether they seek proper registration before launching similar products to retail investors.
📎 Related coverage from: co.uk