CFTC Sues Gemini Over Bitcoin Futures Case From 2017

The Commodity Futures Trading Commission (CFTC) sued Gemini Trust Company LLC Thursday on allegations the crypto exchange’s staff misled the federal regulator during Gemini’s 2017 effort to launch trading of what would have been a landmark bitcoin BTC$89,659.31 futures contract.

In a 28-page civil suit, a copy of which was obtained by CoinDesk, the swaps regulator accused Gemini, which is owned by the Winklevoss twins, of providing misleading answers about how easily a bitcoin futures contract’s price could be manipulated during summertime meetings in 2017. CFTC said Gemini’s “false or misleading statements and omissions” happened in in-person meetings.

"The false or misleading statements and information conveyed or omitted to Commission staff by Gemini directly and through others were material to evaluation of the Bitcoin Futures Contract, including compliance with core principles of the Commodity Exchange Act,” the suit said. “Such statements and information were relevant to, among other things, assessing the size of, liquidity on, and number of market participants using the Gemini Exchange and the Gemini Bitcoin Auction.”

Later, the suit said the CFTC evaluated how “readily susceptible to manipulation” the bitcoin futures contract would be.

“In oral and written communications to Commission staff during the Relevant Period, Gemini represented that it was a ‘full reserve’ exchange and that it required all transactions to be fully ‘pre-funded,’” the suit said. “Gemini represented that the ‘prefunding’ aspect of the Gemini Exchange made the Gemini Exchange and the Gemini Bitcoin Auction, and thus the Bitcoin Futures Contract, less susceptible to manipulation because it increased traders’ cost of capital and made improper trading conduct more expensive to malicious actors.”

However, these statements were either false, misleading or “omitted material information,” the CFTC alleged.

Gemini was trying to reduce the capital cost for market participants to boost trading volumes, the CFTC alleged, including by loaning thousands of bitcoin to market participants.

Gemini also allegedly sent some customers advances, allowing them to immediately trade before the participants had fully funded their accounts.

Gemini also claimed to prevent market participants from trading with themselves, which was not accurate, the agency alleged.

The suit does not specify if the effort was tied to Gemini’s partnership with Cboe to launch the first bitcoin futures contracts at the time.

In a statement, a Gemini spokesperson said, “Gemini has been a pioneer and proponent of thoughtful regulation since day one. We have an eight-year track record of asking for permission, not forgiveness, and always doing the right thing. We look forward to definitively proving this in court.”

In a press release published after this article, CFTC Acting Director of Enforcement Gretchen Lowe said, “Making false or misleading statements to the CFTC in connection with a futures product certification undermines the CFTC’s work to ensure the financial integrity of all transactions subject to the CEA, protect market participants, deter and prevent price manipulation, and promote responsible innovation and fair competition. This enforcement action sends a strong message that the Commission will act to safeguard the integrity of the market oversight process.”

Danny Nelson contributed reporting.

Read the full complaint:

CFTC v Gemini by CoinDesk

UPDATE (June 2, 2022, 17400 UTC): Updated with additional details and statements from Gemini and the CFTC.