SEC Drops Gemini Lawsuit After Earn Users Recover Assets

The U.S. Securities and Exchange Commission has moved to dismiss its civil lawsuit against crypto exchange Gemini, closing a case tied to the failed Gemini Earn lending program after customers recovered their assets through bankruptcy proceedings.

The regulator filed a joint stipulation to dismiss the case with prejudice, meaning it cannot be refiled. The decision followed the return of funds to Gemini Earn users through the Genesis Global Capital bankruptcy process. Gemini Earn allowed customers to lend crypto to Genesis in exchange for interest, before withdrawals were halted during the 2022 market downturn.

The SEC sued Gemini and Genesis in January 2023, alleging the Earn program amounted to an unregistered securities offering. The case became one of several high-profile enforcement actions launched after a series of crypto collapses triggered investor losses across the sector.

Gemini Earn Case Tied to Genesis Collapse

Genesis froze withdrawals in November 2022, shortly after the collapse of FTX, citing liquidity issues. At the time, Gemini said roughly $940 million belonging to Earn customers was locked on the platform. The freeze left thousands of retail users unable to access their funds and sparked legal and regulatory scrutiny.

As a result, Genesis filed for Chapter 11 bankruptcy protection in January 2023. The bankruptcy process became central to determining whether Earn users could recover their crypto. Over time, Genesis reached agreements with creditors that enabled distributions of digital assets rather than cash equivalents.

Between May and June 2024, Earn customers received full recoveries of their crypto assets, returned in kind. The SEC later cited the completion of this recovery process as a key factor in deciding to end its case against Gemini.

Regulatory Pressure Builds, Then Eases

While the SEC dropped its claims against Gemini, Genesis resolved its own dispute with the regulator earlier. In March 2024, Genesis agreed to a final judgment that included a $21 million civil penalty and a permanent injunction, without admitting or denying the allegations.

The Gemini dismissal comes as the SEC faces growing pressure over its approach to crypto enforcement. Courts have pushed back on several agency arguments, while policymakers debate clearer rules for digital asset products, including lending and yield programs.

For Gemini, the end of the lawsuit removes a major legal overhang tied to one of the industry’s most damaging failures. However, the case leaves broader questions unresolved about how crypto lending products should be regulated in the United States and where the line falls between securities offerings and financial services products.

The outcome highlights how asset recovery efforts, rather than courtroom verdicts, increasingly shape the resolution of crypto enforcement cases tied to the 2022 market collapse.