aughman Criticizes SEC's Legal Approach

Jack Baughman, the lawyer representing cryptocurrency exchange Gemini, expressed strong criticism of the Securities and Exchange Commission (SEC) in a post on Aug. 19. Baughman claimed that the SEC is struggling to substantiate its case against the exchange. The SEC's lawsuit centers on Gemini's crypto lending product, Gemini Earn, which the SEC alleges violated securities laws by offering unregistered securities. Baughman, challenging the SEC's stance, stated:

"The SEC is floundering. They can’t even decide what the security is."

Baughman's comments came a day after Gemini filed a reply brief seeking to dismiss the SEC's lawsuit against it.

SEC's Claims Under Scrutiny

The SEC’s lawsuit is based on Gemini's introduction of the Gemini Earn program, which enables users to lend digital assets to Genesis under the terms outlined in a Loan Agreement. According to the SEC, this arrangement constitutes the unlawful sale of unregistered securities, an assertion that Gemini strongly denies.

Baughman's challenge to the SEC’s lawsuit is rooted in the requirement that the SEC must establish two critical elements: the existence of a security and the sale of such security. Baughman contends that the SEC fails to prove either of these elements.

The SEC's uncertainty regarding the nature of the alleged security is a key point of contention in this legal battle. The SEC alternatively argues that the Loan Agreement itself is a security and that the entire Gemini Earn program is a security. Baughman labels the latter position as 'absurd.'

In the court filing, Gemini argued that the SEC's complaint fails to address key issues, such as how, when, where, and to whom the Loan Agreements were sold and under what terms. The complaint also fails to identify any "disposition" of any "interest" in the Loan Agreement for value. Baughman calls this omission fatal to the SEC’s theory.

Moreover, Baughman challenges the SEC’s definition of a “sale” in this context. He points out that the SEC does not identify a sale but makes broad claims that Gemini and Genesis "sold" their promise to pay interest in exchange for crypto assets. Baughman disputes this assertion, emphasizing the difference between a sale and a loan.

Baughman stated:

“Not only is this factually wrong, it is ridiculous. A sale and a loan are different things. At some point words must mean something.”

Baughman on Government Agencies' Legal Positions

With over 30 years of experience in litigation, Baughman observes that it is rare for government entities to adopt extreme positions in legal disputes. While judges often dismiss outlandish arguments put forth by private parties, government agencies like the SEC often receive more serious consideration due to the deference granted to them in interpreting the statutes they administer.

Baughman emphasizes that regulatory bodies must act in the interest of everyone, including those they litigate against. He expresses concern that the current regulatory climate in Washington appears to have strayed from this principle, as agencies seem increasingly willing to "push the envelope" and pursue cases without restraint.


The SEC's lawsuit against Gemini continues to garner attention within the crypto community. Baughman's criticism of the SEC's claims underscores the complexities of regulating digital assets and highlights the importance of clear regulatory frameworks. As the legal battle unfolds, the outcome may have broader implications for the cryptocurrency industry and its evolving relationship with regulatory agencies.

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