Commodity Futures Trading Commission V. Gemini Trust Company, Llc

Case Background

On June 2, 2022, the Commodity Futures Trading Commission (CFTC) filed a securities lawsuit against cryptocurrency exchange Gemini Trust Company, LLC for misleading statements during its evaluation of a Bitcoin futures contract. The lawsuit was filed in the U.S. District Court for the Southern District of New York. Judge Alvin K. Hellerstein presided over this lawsuit. [Case number: 1:22cv4563]

Cause

Gemini allegedly misled the CFTC between July and December 2017. Its officers, employees, and agents made false or misleading statements and withheld key information. These statements concerned the evaluation of a bitcoin futures contract, which a designated contract market considered for self-certification. The contract’s settlement depended on Gemini’s auction-based spot bitcoin price.

The CFTC asserted that Gemini’s misrepresentations influenced its assessment of the contract’s compliance with federal regulations. Specifically, the agency evaluated whether the contract could be manipulated. The CFTC emphasized that accurate information was crucial for determining the contract’s integrity under the Commodity Exchange Act.

Damages

The CFTC sought an injunction, civil penalties, and other equitable relief against Gemini.

Key Arguments and Proceedings

Legal Representation

  • Plaintiff(s): Commodity Futures Trading Commission
    • Counsel for Plaintiff(s): Alejandra de Urioste | Andrew James Rodgers | Diana Chaofan Wang | K. Brent Tomer | Katherine Ellen Rasor | Peter Alexander Janowski | David William Oakland
  • Defendant(s): Gemini Trust Company, LLC
    • Counsel for Defendant(s): Elizabeth Jooyoung Lee | Ernest Edwin Butner, IV | Andrew Curtis Bosse | Daniel Aaron Schwartz | John Frederick Baughman | Maryia Y. Jones

Claims

The CFTC accused Gemini of making false or misleading statements during its evaluation of a Bitcoin futures contract. The agency alleged that Gemini provided inaccurate or incomplete information about key aspects of its platform, including its Bitcoin auction process, trading practices, and financial incentives for market participants.

Regulators claimed that Gemini misrepresented the reliability of its Bitcoin auction and failed to disclose that certain principals and the company itself funded customer trades. The CFTC also alleged that Gemini misled regulators about self-trading, collusive trading, and fee incentives offered to select market makers. Additionally, the agency argued that Gemini inflated reported trading volume and liquidity while omitting details about self-crossing trades and internal funding.

According to the CFTC, Gemini knew or should have known that these statements were false or misleading. The agency asserted that these misrepresentations influenced its review of the Bitcoin futures contract. Since Gemini personnel acted within their roles at the company, the CFTC held Gemini responsible for their actions. Each alleged misstatement or omission constituted a separate violation of federal law.

Defense

On August 2, 2022, Gemini denied allegations that it misled the CFTC about a futures contract self-certification process. The company argued that the claims relied on false information from Benjamin Small, a former employee fired for misconduct. Gemini asserted that it fully cooperated with the CFTC and that the futures contract was reliable and caused no harm. It also contended that the investigation lacked merit and that the enforcement action conflicted with the CFTC’s mission.

Later, both Gemini and the CFTC requested partial summary judgment on Gemini’s responsibility for the statements. Much of the information had been provided through Cboe Futures Exchange LLC, which was not part of the lawsuit. In November, U.S. District Judge Alvin K. Hellerstein ruled that Gemini made the statements directly to regulators and indirectly through Cboe Futures Exchange. He determined that a jury trial was necessary to assess the accuracy of the statements.

Settlement

The trial was originally set for January 13, 2025, but was postponed to January 21, 2025. However, on January 6, 2025, Gemini agreed to pay a $5 million penalty to settle the case. The company did not admit or deny the allegations. Judge Hellerstein approved the settlement, which barred Gemini from making misleading statements to the futures regulator. The agreement resolved all remaining claims against the company.

Court Documents:

Documents are available for purchase upon request at jurimatic@exlitem.com