CFTC Opposes Request for Partial Dismissal in Enforcement Action Against Crypto Platform Gemini
On Friday, April 19, 2024, the Commodity Futures Trading Commission filed its opposition to Gemini Trust Company’s motion for partial summary judgment in an ongoing case between the two parties.
The case stems from allegations that Gemini, a cryptocurrency exchange, made false or misleading statements to the CFTC when seeking approval to list a bitcoin futures contract on the Cboe Futures Exchange in 2017. The proposed contract would have settled based on the spot price of bitcoin, determined by auctions held on the Gemini platform.
In its motion, Gemini argued it should not be held liable for some of the statements at issue because they were submitted to the CFTC through Cboe rather than directly from Gemini. However, in its opposition filing, the CFTC argued this interpretation is not supported by law.
The agency cited Section 6(c)(2) of the Commodity Exchange Act, which prohibits making false or misleading statements to the CFTC. It noted the statute is analogous to other laws barring false statements to the government, which courts have found apply regardless of whether the statement was relayed directly or through an intermediary.
The CFTC also argued Section 6(c)(2) should not be interpreted in the same way as SEC Rule 10b-5, which Gemini relied on in its motion. Unlike the SEC rule which involves private securities transactions, Section 6(c)(2) specifically prohibits false statements made to a government agency, the CFTC.
According to the filing, in early 2017 Gemini provided information to Cboe about its exchange and auction mechanics for the proposed bitcoin futures contract. This included claims that orders on its platform were pre-funded, and it monitored for self-trading, which are categories of statements now alleged to be false.
The opposition stated that throughout discussions with the CFTC, Cboe relied on information and data from Gemini about topics like the reliability of its auction pricing and trading volume. Cboe witnesses testified they would not have submitted anything to the CFTC related to Gemini without its input and approval.
The four written submissions at issue included a presentation to the CFTC, Gemini trade data, an analysis of its March 2017 auction data, and several drafts of the self-certification letter. The filing argued Gemini helped draft, commented on, and approved all of these documents before Cboe submitted them to regulators.
Even if the court determined the Janus Capital standard for SEC Rule 10b-5 claims applied, the CFTC argued Gemini still had “ultimate authority” over the statements as they concerned its own business and operations. This included control over the statements’ contents, as well as whether and when they were sent to the CFTC.
In its conclusion, the CFTC asserted Gemini’s motion should be denied in full as there are genuine disputes over material facts. If the case proceeds to trial, the agency will have to prove Gemini knowingly or recklessly made false or misleading statements to the CFTC to show a violation of Section 6(c)(2).
Please contact BlockTribune for access to a copy of this filing.
