Gemini Crypto Exchange Operator Sued Over Role In Bitcoin Futures Product

The Commodity Futures Trading Commission on Thursday sued billionaire Winklevoss brothers crypto firm, alleging it misled regulators into trying to get bitcoin futures approved in 2017.

Gemini Trust Co. Bitcoin price provided to Cboe Global Markets Inc.,

qui a lancé un produit à terme bitcoin en décembre 2017. Une vente aux enchères autorisée par Gemini a déterminé comment le contrat bitcoin serait réglé le dernier jour avant son expiration, assurant un lien étroit entre les contrats à terme et le marché du bitcoin- same.

The CFTC lawsuit amounts to an attack on one of the crypto industry’s best-known brands, accusing the company of using undisclosed incentives to trade geese over a significant period of the day. The alleged efforts to increase trading volumes were not disclosed to the CFTC, although Gemini executives contacted regulators directly to answer questions about the exchange’s operations and whether trading could be manipulated during the critical window.

Gemini misled the CFTC about how the auction works, including whether traders should fully fund their bets or borrow to make more trades, the CFTC said. The regulator tried to collect this information before the contract was launched to ensure it would not be subject to manipulation.

The CFTC lawsuit against the operator of one of the largest US cryptos shows how regulators are increasingly intervening in a market that has grown without the federal safeguards that trade US capital markets. It is noteworthy to target a cryptocurrency company that has presented itself as a loyal regulator, claiming that it prefers formal rules to the market.

Gemini said it plans to challenge the CFTC’s allegations in court.

“Gemini has been a pioneer and advocate of thoughtful regulation since day one,” the company said. “We have eight years of experience asking permission, not forgiveness, and always doing the right thing. We can’t wait to finally prove it in court.

Bitcoin futures were long anticipated by traders in 2017, when the price of the world’s most valuable digital currency started skyrocketing. But Chicago-based Cboe terminated its futures contract in 2019 after volumes lagged those of a rival bitcoin futures contract offered by Cboe competitor CME Group. Inc.

A spokeswoman for Cboe declined to comment.

Under US law, derivatives exchanges “certify” themselves for new futures contracts, meaning they don’t have to get an explicit green light from the CFTC before launching. As part of the process, exchanges must declare that they have controls in place to guard against price manipulation. The CFTC has emergency powers to suspend new business trading, but has rarely used this power. The system gives exchanges a great deal of leeway to bring new products to market.

“Making false or misleading statements to the CFTC in connection with a certification of a futures product undermines the CFTC’s work to ensure the financial integrity of all transactions,” said Gretchen Lowe, acting chief financial officer of the CFTC, and announced the trial Thursday.

As part of explaining why the bitcoin auction could not be easily manipulated, Gemini told the regulator that traders must fully fund their positions. However, the CFTC wrote in its lawsuit filed in Manhattan federal court that a company controlled by two Gemini insiders provided unsecured loans to merchants “to facilitate transactions on the Gemini Exchange, including in the Gemini Bitcoin auction.”

Gemini also donated hundreds of thousands of dollars to merchants to allow them to participate in the auction, the CFTC said.

Gemini’s funding efforts were inconsistent with what it told regulators, the CFTC said. Requiring merchants to fully fund their businesses “makes inappropriate business conduct more profitable for malicious actors,” the agency wrote in its complaint.

Gemini also told the CFTC it has measures in place to prevent self-trading, where a company acts as both buyer and seller in the same transaction, while self-trading could occasionally occur with Gemini, the CFTC said. Self-trading can give a misleading picture of the trading volume at an auction and lead to manipulative behaviour, according to the regulator.

write to Dave Michaels at dave.michaels@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com

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