The SEC's action against Gemini and Genesis has been granted permission by a federal judge, marking a significant legal breakthrough. The judge determined that the SEC's allegations regarding the Gemini Earn program involving the sale of unregistered securities were credible.

Gemini and Genesis filed moves to have the action dismissed, but Judge Edgardo Ramos rejected them, ruling that the SEC's claims satisfy the criteria for an investment contract under the Howey test—a legal framework used to categorize securities.

A motion to stop the SEC's demand that Gemini and Genesis cease selling securities and turn over Gemini Earn proceeds in the event that the SEC prevails in court was also denied by the judge.

Judge Ramos pointed out that consumers' expectations of returns were contingent on Genesis' efforts, since the company pooled assets on its balance sheet and lent money to institutional borrowers based on its judgment and discretion.

The SEC's claims that Gemini Earn agreements were notes - debt securities requiring loan repayments with interest - were likewise upheld by the court. Although the court's judgment permits the case to proceed, it does not signify a decision in the SEC's favor because the regulator must still establish its case, and all parties will now gather evidence.

In related news, Genesis and the SEC recently reached a $21 million settlement. Gemini Earn, which in November 2022 had about 340,000 users and $900 million in assets under management, had difficulties after Genesis filed for bankruptcy in response to the SEC's initial lawsuit. 

Despite these obstacles, Gemini reached a deal with New York's financial regulator in which it agreed to reimburse $1.1 billion to Gemini Earn customers via the Genesis bankruptcy action.