- The SEC had warned that 2022 would be a regulatory nightmare for crypto companies, and it seems to have kept its word.
- Crypto exchange Gemini accuses the SEC of contradictory behavior.
- According to Gemini officials, the lack of clarity and transparency from the SEC highlights its unfairness.
The SEC’s crackdown on crypto companies has intensified, following a series of financial mishaps in the sector, including the collapse of FTX. Gemini, a prominent crypto exchange, has accused the SEC of acting inconsistently and without transparency, which it believes underlines the regulator’s unfairness.
The SEC, FTX, and the Crypto War
Before we delve into Gemini’s recent actions, let’s recap how we got here. The crypto credit debt cycle was disrupted following the collapse of Terra, leading to a chain reaction of failures among high-risk crypto entities like 3AC, also known as Degen or smart money. The largest domino, FTX, also fell. Prior to its collapse, FTX’s founder was a well-known figure in the US House of Representatives and the company was widely believed to be the most regulated exchange in the country.
FTX’s founder, SBF, hails from a powerful family with strong academic achievements and significant political connections. Perhaps this is why FTX, rather than the publicly traded and frequently audited Coinbase, was touted as the most regulated crypto institution.
The collapse of FTX occurred right under the noses of Gensler and other Democratic officials. The SEC, which did not use even a fraction of its current sanctioning power against FTX at the time, is now waging a war against crypto. This was not a surprise. If you recall the end of 2022, senior SEC officials admitted that 2023 would be a nightmare year for crypto companies.
The SEC is Unfair on Crypto
According to court documents filed in the Southern District of New York on August 18, Gemini claims that the SEC did not bring a lawsuit against them with solid grounds and that the lawsuit should be dismissed. Furthermore, Gemini suggests that the SEC’s ambiguity is a cry for covering up its unfairness.
“The SEC’s inability to decide what the security in question is only underscores the weakness of its position.”
Gemini also argued that the court should not deal with the “complex analyses” presented by the SEC, but should ask simple questions to determine whether it is classified as a security. The lawsuit alleges that Gemini Earn, a service that allows customers to lend crypto assets like Bitcoin (BTC) to Genesis, is offering unregistered securities and violating securities regulations.
Gemini also claimed that the SEC first needs to identify the unregistered security and then determine the sale or offer of sale of this security. Gemini wrote that the SEC did not fulfill this requirement.
On August 19, Jack Baugham, a founding partner of JFB Legal representing Gemini, claimed on X (formerly Twitter) that the SEC changed its argument while the lawsuit was ongoing.
“The SEC is floundering. They can’t even decide what the security is. On one hand, they claim that the Credit Agreement is a security. On the other hand, they claim that the entire Gemini Earn program itself is a security.”
Conclusion
The ongoing battle between the SEC and crypto companies like Gemini highlights the regulatory challenges facing the crypto industry. With accusations of unfairness and inconsistency, it’s clear that the road to regulatory clarity is still a long one. As the situation unfolds, the crypto community will be watching closely to see how these regulatory issues are resolved.
