US District Judge Edgardo Ramos recently rejected requests from cryptocurrency exchange Gemini and crypto lender Genesis to dismiss the case filed against them by the US Securities and Exchange Commission (SEC). The SEC claims that both companies sold “unregistered securities” through the Gemini Earn program. The court order, issued in the US District Court for the Southern District of New York on Wednesday, states that the complaint makes a valid argument regarding the sale of unregistered securities and rejects the defendants’ requests to dismiss the case. The court deems the allegations of unregistered securities as believable. The SEC’s argument relies on two separate theories that were proposed by the commission. The first argument presented is that the Gemini Earn program meets the criteria of an investment contract according to the Howey test. This test classifies an investment contract as a contractual arrangement where individuals invest money in a shared project and anticipate returns based on the efforts of others. In its ruling, the court determined that the complaint presents a convincing argument that Gemini and Genesis may have unlawfully offered and sold unregistered securities through the Gemini Earn program. Additionally, JPMorgan has drawn parallels between cryptocurrency and smoking cigarettes in a recent article. The court order emphasizes the importance of “horizontal commonality” in defining a common enterprise in an investment contract. Horizontal commonality is achieved when the financial well-being of individual investors is linked to the overall performance of the enterprise through the combining of assets and sharing of profits. The SEC claims that Gemini combined crypto assets from its investors and pooled them on Genesis’ balance sheet instead of keeping the assets separate. Genesis loaned out these assets to institutional borrowers and utilized the interest earned to compensate investors in Gemini Earn. Judge Ramos determined that the accusations suggest a commonality among the parties involved. The court order also addresses the SEC’s second theory that the Gemini Earn agreements can be classified as notes according to the Reves v. ruling.