(Bloomberg) - The Winklevoss twins’ Gemini Trust Co. is being sued by the Commodity Futures Trading Commission for allegedly misleading the derivatives regulator in a bid to launch the first US-regulated Bitcoin futures contract.
The CFTC said Thursday that Gemini “made false and misleading statements” from July to December 2017 about how it would prevent manipulation in Bitcoin prices that were to serve as a reference for the derivatives based on the cryptocurrency. In a lawsuit filed in federal court in Manhattan, the agency sought trading and registration bans, as well as fines.
Gemini, which was co-founded by Cameron and Tyler Winklevoss who are best known for the Hollywood depiction of their disputed role in founding Meta Platforms Inc.’s Facebook, misled the regulator about its efforts to prevent people from trading against themselves, the CFTC said. The alleged conduct happened just as Cboe Global Markets Inc. was preparing to launch the first Bitcoin futures contract on an exchange overseen by the regulator -- a development that helped fuel a torrid rise in the world’s biggest token.
The proposed Bitcoin futures contract “was particularly significant because it was to be among the first digital asset futures contracts listed on a designated contract market, at a time of fervent interest by market participants in obtaining exposure to Bitcoin through the derivatives markets,” said the regulator.
Gemini vowed to fight the allegations. “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,” the firm said in a statement.
According to the CFTC, Gemini loaned market-makers funds to induce more trading on the exchange, which allegedly reduced protections against price manipulation. The regulator also said that Gemini staff decided to leave it to market-making firms to figure out how to keep people from trading with themselves, saying in one internal message that the traders “‘are grownups, they can figure it out,’” according to the lawsuit.
The complaint added that self-trading, which can distort markets, only rarely occurred on the platform after the exchange took steps in May 2017 to prevent it.
Cboe Bitcoin futures were quickly followed by the launch of a similar product by its larger rival CME Group Inc. in December 2017. While the CME contracts continue to trade, the Cboe ones were de-listed in 2019 amid lackluster trading volume. Cboe didn’t immediately respond to a request for comment.
Gemini was one of the first crypto exchanges in the US to get a special financial services license from New York state in 2015 to handle digital assets. Still, not all of the exchange’s regulated pursuits with regulators have been successful. The Securities and Exchange Commission has repeatedly turned down efforts backed by the billionaire twins to list a Bitcoin-backed exchange-traded fund in 2018.
The case is Commodity Futures Trading Commission v. Gemini Trust Co., 22-cv-04563, US District Court, Southern District of New York (Manhattan).
(Updates with further information on the allegations starting in second paragraph.)
By Bob Van Voris and Lydia Beyoud
