Crypto Yield Securities Test Heads to Second Circuit

Regulators have pursued separate actions. The SEC announced in January 2025 that DCG and former Genesis CEO Soichiro Moro agreed to pay $38.5 million to settle allegations they misled investors about Genesis' financial condition after the Three Arrows default. DCG paid $38 million; Moro contributed $500,000. Neither admitted nor denied the SEC's findings. New York Attorney General Letitia James expanded her civil fraud case against Genesis, DCG, and Gemini to claim more than $3 billion in investor losses, later settling with Genesis for $2 billion. More than 230,000 investors were affected, the state said.

Underhill's latest order reinstated a New York common law fraud claim against Silbert, DCG, and Murphy. He dismissed consumer protection claims under the laws of Illinois, Kansas, Nevada, and Texas, and stayed similar claims under California, Florida, and New York law. The federal securities claims that survived earlier motions are still alive. Common law fraud focuses on whether executives knowingly made false statements, whether investors relied on them, and what losses resulted. That gives plaintiffs another path to damages even if the securities question is resolved in DCG's favor.

The interlocutory appeal lets DCG ask the Second Circuit whether Genesis Yield is a security. Underhill's February order said yes. If the Second Circuit agrees, the ruling would set a precedent for how yield products are treated across the industry. If it disagrees, lenders and exchanges would get clarity that such products fall outside federal securities law. The Second Circuit has not yet decided whether to hear the appeal.

For anyone holding tokens tied to lending platforms or crypto yield products, this case is the one to track. The next concrete marker is the Second Circuit's decision on whether to accept the appeal. No date has been set.