Winklevoss-led Crypto Exchange, Gemini, To Pay CFTC $5M For Statements About Bitcoin Futures Contract

Earlier this month, crypto exchange Gemini Trust Company, LLC (“Gemini”), led by Tyler and Cameron Winklevoss, agreed to pay $5 million to the U.S. Commodity Futures Trading Commission (“CFTC”) to resolve claims regarding alleged misrepresentations about certain aspects of the company’s proposed bitcoin futures contract. 

The CFTC sued Gemini in 2022 in the Southern District of New York.  According to the CFTC, the proposed bitcoin futures contract was “significant because it was to be among the first digital asset futures contracts listed on a designated contract market,” the Cboe Futures Exchange (“CFE”).  As the district court explained, while “[n]ormally futures contracts for commodities are priced in relation to the ‘spot’ prices commanded by the immediate deliveries of the commodity at fixed places and times; Gemini proposed that its contract be cash-settled, that is, not by the delivery of the bitcoins that are the subject of the contracts, but by the final auction price of its exchange.”  For a futures contract to be listed on the CFE, the CFTC is required to assure that the contract satisfies 12 core principles.  As relevant here, Core Principal 3 “requires futures contracts to be ‘not readily susceptible to manipulation.’”  This principle was of particular concern to the CFTC because the proposed futures contracts were to be “cash-settled,” which “may create an incentive to[,]” among other things, “manipulate or artificially influence the data from which the cash-settlement price is derived,” “in order to profit on a futures position in that commodity.”  Bitcoins have “no value of an underlying commodity or instrument to provide a reliable or robust indicator that the cash-settled price is not readily susceptible to manipulation[,]” but there are other factors that the CFTC uses to assure the reliability of cash-settlement prices.  Gemini allegedly made representations to the CFTC during the agency’s investigation, which the CFTC alleged left out material information for the agency’s analysis of whether its proposed futures contract was susceptible to manipulation.

After discovery, both parties moved for partial summary judgment with respect to whether Gemini could be held responsible for the statements, since much of the information was provided to the CFTC through the CFE.  In November, the district court found that Gemini made the representations and that a jury should decide whether the alleged representations were materially false and misleading.  

The settlement followed this decision, with Gemini neither admitting nor denying the allegations.