Table of Contents
The Gemini Trust Company, the Manhattan-based crypto exchange founded by the Winklevoss twins in 2014, will pay a $5 million civil penalty to settle a lawsuit filed by the Commodity Futures Trading Commission (CFTC), Bloomberg reported.
The settlement, disclosed in court documents on Monday, resolves allegations that Gemini made “false or misleading statements” during its efforts to gain approval for a Bitcoin futures contract.
The agreement allows Gemini to avoid a trial originally scheduled to begin on January 21. As part of the settlement, the company neither admitted nor denied wrongdoing, according to the filings.
The CFTC’s lawsuit, filed in 2022, accused Gemini of providing inaccurate information about how its proposed Bitcoin futures contract could be susceptible to manipulation. The complaint also suggested Gemini “knew or reasonably should have known” that its representations to the CFTC were false.
Gemini’s Bitcoin futures product was notable for being the first of its kind to rely on pricing data from a cryptocurrency exchange. The product, launched on the Cboe Futures Exchange in 2017, played a pivotal role in bringing Bitcoin-based derivatives to traditional financial markets.
However, as the CFTC’s legal filings revealed, concerns about Gemini’s internal practices and transparency cast a shadow over this milestone. Court documents highlighted questionable activities, including internal communications where Gemini executives allegedly downplayed potential manipulation risks and failed to disclose conflicts of interest.
One particularly striking detail from the case involved internal memos showing Gemini executives brushing off self-trading activities, or “wash trading,” on the platform. These trades artificially inflated market activity and pricing data, which was integral to the Bitcoin futures contract’s approval.
The CFTC also alleged that Gemini failed to inform regulators about the dismissal of an employee who had been involved in discussions with the Commission. According to the filings, Gemini omitted key details about the individual’s termination, raising further questions about the company’s transparency.
The case has drawn parallels to historical scandals in traditional finance, such as the Salomon Brothers Treasury bond fiasco in the 1990s, where deceptive practices led to severe regulatory penalties. Observers have pointed out that Gemini, often seen as one of the more compliance-focused crypto exchanges, appears to have stumbled into a similar regulatory pitfall.
Jon Reiter
Under the current Biden administration, US regulators have stepped up enforcement actions, targeting exchanges and other crypto businesses accused of violating U.S. securities and commodities laws. Industry players are hoping for a more favorable regulatory environment under Donald Trump, who will be inaugurated on January 20.
Blockhead
While the $5 million penalty is relatively small in the context of the broader cryptocurrency industry, the allegations of misleading regulators could have lasting repercussions for Gemini’s standing with institutional partners and regulatory bodies.
