On Thursday, the Commodity Futures Trading Commission (CFTC) filed a complaint against Gemini Trust Company LLC, led by the Winklevoss twins in the U.S. District Court for the Southern District of New York.
The markets regulator alleges that from approximately July 2017 to December 2017, Gemini misled regulators "for making material false or misleading statements" in an effort to gain approval for its futures product.
Cboe Global Markets launched its Bitcoin futures product in December 2017 partnering with Gemini Trust Company as its pricing provider.
As per the product’s mechanism, the Bitcoin contract would settle on its final day before expiration based on an auction run by Gemini to ensure close correlation between the futures and Bitcoin’s spot price.
Specifically, the CFTC alleges that Gemini misled regulators about how this auction works.
According to Gemini, the bets have to be fully pre-funded by the traders, telling regulators that increased trader costs would make their Bitcoin futures product less susceptible to manipulation.
Still, the company allowed some bespoke participants to trade before their account was fully funded.
In the complaint, the CFTC alleged that Gemini offered undisclosed incentives in the form of fee rebates and overrides to promote trading volumes. The company also provided trading incentives for some of its bespoke clients, without disclosing it to the public.
These efforts to reduce capital costs for its market participants to promote trading volumes were not disclosed to the regulator, and are in-contrary to the company’s initial statement made during its approval in 2017.
What’s next for Gemini?
As part of the charges, the CFTC is also seeking monetary penalties and potentially even "trading and registration bans" on the exchange should the court deem it so.
Gemini's spokesperson in a statement mentioned that they are planning to fight the allegation in court.
“We have an eight-year track record of asking for permission, not forgiveness, and always doing the right thing.,” a Gemini spokesperson told Reuters. "We look forward to definitively proving this in court.”