Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 1 of 28

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

COMMODITY FUTURES TRADING Case No. 22 Civ. 4563

COMMISSION,
ECF Case
Plaintiff,
COMPLAINT FOR INJUNCTIVE
v. AND OTHER EQUITABLE RELIEF
AND FOR CIVIL MONETARY
GEMINI TRUST COMPANY, LLC, PENALTIES UNDER THE
COMMODITY EXCHANGE ACT
Defendant. AND COMMISSION REGULATIONS

JURY TRIAL DEMANDED

I. INTRODUCTION

1. From at least in or around July 2017 through at least in or around December 2017

(the “Relevant Period”), Gemini Trust Company, LLC (“Gemini” or “Defendant”), through

officers, employees, agents, or others, made false or misleading statements of material facts, or

omitted to state material facts, to Commission staff in connection with Commission staff’s

evaluation of the potential self-certification by a designated contract market (the “DCM”) of a

bitcoin futures contract (the “Bitcoin Futures Contract”) that was to be settled by reference to the

spot bitcoin price on the relevant day as determined by an auction (the “Gemini Bitcoin

Auction”) held on Gemini’s digital asset trading platform (the “Gemini Exchange”).

2. In furtherance of efforts to persuade Commission staff as to the compliance with

the Commodity Exchange Act and Commission Regulations of the Bitcoin Futures Contract,

Gemini, directly and through others, made false or misleading statements and omissions to

Commission staff with respect to the operations of the Gemini Exchange and the Gemini Bitcoin

Auction. The statements were made during in-person meetings with Commission staff in July

and August 2017, as well as in presentation materials, data, and documents provided to the

Commission. In some instances, Gemini made the false or misleading statements and omissions
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 2 of 28

in response to specific questions posed by Commission staff who were considering, among other

things, whether the proposed Bitcoin Futures Contract would be readily susceptible to

manipulation.

3. Gemini officers, employees, and agents (collectively, “Gemini personnel”) knew

or reasonably should have known that the statements and information conveyed or omitted by

Gemini directly and through others were false or misleading with respect to, among other things,

facts relevant to understanding whether the proposed Bitcoin Futures Contract would be readily

susceptible to manipulation.

4. The false or misleading statements and information conveyed or omitted to

Commission staff by Gemini directly and through others were material to evaluation of the

Bitcoin Futures Contract, including compliance with core principles of the Commodity Exchange

Act, including Core Principles 3 and 12, “Contracts Not Readily Subject to Manipulation” and

“Protection of Market Participants,” respectively. Such statements and information were

relevant to, among other things, assessing the size of, liquidity on, and number of market

participants using the Gemini Exchange and the Gemini Bitcoin Auction.

5. 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. Information provided directly and indirectly by Gemini to Commission

staff about the Gemini Exchange, the Gemini Bitcoin Auction, and the Bitcoin Futures Contract

was important to the Commission’s work as it sought to fulfill its statutory mission, including

ensuring financial integrity of transactions subject to the Commodity Exchange Act, protecting

2
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 3 of 28

market participants, deterring and preventing price manipulation and any other disruptions to

market integrity, and promoting responsible innovation.

6. Through this conduct, Gemini has engaged, is engaging, or is about to engage in

acts and practices in violation of the Commodity Exchange Act (“Act”), 7 U.S.C. §§ 1–26, and

Commission Regulations (“Regulations”), 17 C.F.R. pts. 1–190 (2021), specifically

Section 6(c)(2) of the Act, 7 U.S.C. § 9(2).

7. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1, the Commission

brings this action to enjoin such acts and practices and compel compliance with the Act. In

addition, the Commission seeks civil monetary penalties and remedial ancillary relief, including,

but not limited to, trading and registration bans, disgorgement, pre- and post-judgment interest,

and such other relief as the Court may deem necessary and appropriate.

8. Unless restrained and enjoined by this Court, Gemini is likely to continue to

engage in the acts and practices alleged in this Complaint and similar acts and practices, as more

fully described below.

II. JURISDICTION AND VENUE

9. Jurisdiction. This Court has jurisdiction over this action under 28 U.S.C. § 1331

(federal question jurisdiction) and 28 U.S.C. § 1345 (district courts have original jurisdiction

over civil actions commenced by the United States or by any agency expressly authorized to sue

by Act of Congress). In addition, Section 6c(a) of the Act, 7 U.S.C. § 13a-1(a), authorizes the

Commission to seek injunctive and other relief against any person whenever it appears to the

Commission that such person has engaged, is engaging, or is about to engage in any act or

practice constituting a violation of any provision of the Act or any rule, regulation, or order

thereunder.

3
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 4 of 28

10. Venue. Venue properly lies with the Court pursuant to Section 6c(e) of the Act,

7 U.S.C. § 13a-1(e), because Defendant is found in, inhabits, or transacts business in this

District, or because acts and practices in violation of the Act occurred, are occurring, or are about

to occur, within this District.

III. THE PARTIES

11. Plaintiff Commodity Futures Trading Commission (“Commission” or

“CFTC”) is an independent federal regulatory agency that is charged by Congress with the

administration and enforcement of the Act and the Regulations. The Commission maintains its

principal office at Three Lafayette Centre, 1155 21st Street, N.W. Washington, D.C. 20581.

12. Defendant Gemini Trust Company, LLC is a New York chartered limited

liability trust company based in New York, New York, whose business is to operate a digital

asset trading platform and to offer custodial and related services. Gemini has not been registered

with the Commission.

IV. FACTS

A. Virtual Currencies

13. A virtual currency is a type of digital asset defined here as a digital representation

of value that functions as a medium of exchange, a unit of account, and/or a store of value, but

does not have legal tender status in any jurisdiction. Bitcoin and other virtual currencies are

distinct from “real” currencies, which are the coin and paper money of the United States or

another country that are designated as legal tender, circulate, and are customarily used and

accepted as a medium of exchange in the country of issuance.

14. Digital assets such as bitcoin and other virtual currencies are encompassed by the

definition of “commodity” under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).

4
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 5 of 28

B. Listing of Futures Products by DCMs

15. It is the purpose of the Act to, among other things, deter and prevent price

manipulation or any other disruptions to market integrity; to ensure the financial integrity of all

transactions subject to the Act and the avoidance of systemic risk; to protect all market

participants from fraudulent or other abusive sales practices and misuses of customer assets; and

to promote responsible innovation and fair competition among boards of trade, other markets and

market participants. Section 3(b) of the Act, 7 U.S.C. § 5(b).

16. In furtherance of this purpose, DCMs are required by law to comply with core

principles of the Act and with applicable requirements established by the Commission. See

Section 5(d) of the Act, 7 U.S.C. § 7(d). For instance, Core Principle 3 requires that a DCM

shall list only contracts that are not readily susceptible to manipulation. See Section 5(d)(3) of

the Act, 7 U.S.C. § 7(d)(3); Regulation 38.200, 17 C.F.R. § 38.200 (2021). Further, Core

Principle 12 requires that a DCM shall establish and enforce rules to protect markets and market

participants from abusive practices committed by any party and to promote fair and equitable

trading. See Section 5(d)(12) of the Act, 7 U.S.C. § 7(d)(12); Regulation 38.650,

17 C.F.R. § 38.650 (2021).

17. In evaluating the extent to which cash-settled futures contracts such as the Bitcoin

Futures Contract are readily susceptible to manipulation, Regulations identify several relevant

factors, including, for example, the size and liquidity of the underlying cash market and the

trading volume and number of participants involved in determining the settlement price. E.g.,

Part 38 of the Regulations App’x C(c)(2), 17 C.F.R. pt. 38, App’x C(c)(2) (2021) (“In particular,

situations susceptible to manipulation include those in which the volume of cash market

transactions and/or the number of participants contacted in determining the cash-settlement price

are very low.”).

5
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 6 of 28

18. Section 5c(c)(4) of the Act and Commission Regulation 40.3 permit a DCM to

request that the Commission approve a new futures contract product prior to listing the product

for trading. 7 U.S.C. § 7a-2(c)(4); Regulation 40.3(a), 17 C.F.R. § 40.3(a) (2021). Such a

request for approval requires a voluntary submission by the DCM of certain information set forth

in Regulation 40.3(a). If such a request for approval is made, Commission staff may request

additional evidence, information, or data demonstrating that the contract meets the requirements

of the Act. Regulation 40.3(a)(10), 17 C.F.R. § 40.3(10) (2021). After a forty-five-day review

period, which may be extended if the product raises novel or complex issues that require

additional time to analyze, the Commission shall approve the product unless the terms and

conditions of the product violate the Act or the Commission’s regulations. Regulation 40.3(b)-

(d), 17 C.F.R. § 40.3(b)-(d) (2021).

19. Alternatively, Section 5c(c)(1) of the Act permits a DCM to list a new futures

contract for trading by providing the Commission a written certification that the new contract

complies with the Act and Regulations. 7 U.S.C. § 7a-2(c)(1). The written certification, often

submitted in the form of a letter (a “self-certification letter”), must include, among other things,

an explanation and analysis of the product’s compliance with the core principles for contract

markets set forth in the Act and Regulations,1 including Core Principle 3. See Regulation

40.2(a), 17 C.F.R. § 40.2(a) (2021).

20. In evaluating a new product submitted for approval or in anticipation of self-

certification, the Commission may, and did regarding the Bitcoin Futures Contract, engage in

discussions with the DCM and other relevant parties (e.g., as in this case, the underlying market

1
The core principles for contracts markets are set forth in 7 U.S.C § 7(d) and Part 38 of the Regulations, 17 C.F.R.
pt. 38 (2021).

6
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 7 of 28

provider) concerning the contours and operation of the potential contract, and may ask the

relevant parties to alter the terms to conform with or better meet the core principles.

21. In evaluating a new product, Commission staff also can require additional

evidence, information or data that demonstrates that the contract meets, initially or on a

continuing basis, the requirements of the Act and Regulations. See Regulation 40.2(b),

17 C.F.R. § 40.2(b) (2021).

22. Absent a finding by the Commission that certification of the new product would

be inconsistent with the Act or Regulations, a DCM may list the new product no sooner than one

full business day following the self-certification. See 7 U.S.C. § 7a-2(c); 17 C.F.R. § 40.2(a).

23. The Commission is authorized, upon requisite findings and proceedings, to alter

or supplement the rules of a DCM, including relating to such a new product. See Section 8a(7)

of the Act, 7 U.S.C. § 12a(7). The Commission may stay the listing of the contract during such

proceeding, as well as during a proceeding for false certification. Regulation 40.2(c),

17 C.F.R. § 40.2(c) (2021).

24. In sum, the Commission has oversight authority with respect to new products,

including self-certified listings, and can act as necessary to ensure their compliance with the Act

and Regulations.

C. The Bitcoin Futures Contract Under Evaluation

25. In and around the Relevant Period, Gemini and the DCM engaged with

Commission staff in connection with Commission staff’s evaluation of compliance with the Act

and Regulations of the potential self-certification by the DCM of the Bitcoin Futures Contract.

26. The Bitcoin Futures Contract to be traded at the DCM was to be cash settled by

reference to the spot bitcoin price on the relevant day as determined by the Gemini Bitcoin

Auction.

7
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 8 of 28

27. This meant that the Gemini Bitcoin Auction price on the final settlement day of

the Bitcoin Futures Contract determined the price of the Bitcoin Futures Contract, with

settlement by a cash payment rather than by physical delivery.

28. The bitcoin price as determined by the Gemini Bitcoin Auction thus was an

important component to the Bitcoin Futures Contract.

D. The Gemini Bitcoin Auction

29. During the Relevant Period, as well as before and after, the Gemini Exchange

operated as a digital asset trading platform, where customers could trade assets such as bitcoin

and ether, typically for a small fee per trade.

30. The Gemini Exchange began conducting the Gemini Bitcoin Auction daily at

around 4 PM ET in or around September 2016. According to Gemini, the Gemini Bitcoin

Auction was designed to attract bids and offers in the hours and minutes leading to the auction

time, and then to arrive at a price in U.S. Dollars that would result in the greatest volume of

matched orders.

31. In the hours and minutes before 4 PM ET, market participants could enter

auction-only orders as well as continuous trading orders. The Gemini Bitcoin Auction price was

determined at 4 PM ET by finding the price at which the greatest aggregate buy demand and sell

demand from all eligible orders can be fulfilled, with all continuous trading orders and auction-

only orders.

32. Before and during the Relevant Period, Gemini took various steps to increase

trading volume and liquidity on the Gemini Exchange, including the Gemini Bitcoin Auction.

33. In or around March 2017, the Securities Exchange Commission rejected an

application for an exchange-traded product involving Gemini. The rejection noted the Gemini

Exchange’s lack of significant trading volume as a factor.

8
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 9 of 28

34. The Bitcoin Futures Contract was expected to benefit Gemini’s business, such as,

among other ways, through licensing fees and increased trading volume on the Gemini Exchange

and during the Gemini Bitcoin Auction.

E. Gemini’s False or Misleading Statements and Omissions to Commission Staff

35. In furtherance of efforts to persuade Commission staff that the Bitcoin Futures

Contract complied with the Act and Regulations, Gemini, directly and through others, made

statements to Commission staff in connection with and concerning the proposed Bitcoin Futures

Contract and the operations of the Gemini Exchange and the Gemini Bitcoin Auction.

36. For example, such statements were made during in-person meetings with

Commission staff in or around July 25, 2017, and in or around August 28, 2017, as well as in

presentation materials, data, and documents provided to the Commission during the Relevant

Period.

37. At times, Gemini personnel conveyed information directly to Commission staff.

At times, Gemini personnel provided information to the DCM (or others) concerning Gemini

with the understanding and intent that the DCM (or others) would convey the information to

Commission staff.

38. At various times during the Relevant Period, as part of efforts to persuade

Commission staff that the Bitcoin Futures Contract complied with the Act and Regulations,

Gemini made and caused to be made false or misleading statements and omissions to

Commission staff concerning the Bitcoin Futures Contract.

39. Such false or misleading statements and omissions to Commission staff were

material, including to the evaluation of compliance with the Act and Commission Regulations of

the Bitcoin Futures Contract.

9
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 10 of 28

F. False or Misleading Statements and Omissions Concerning Loans and

Advances

40. During the Relevant Period, for instance, Gemini made and caused to be made

false or misleading statements and omissions to Commission staff regarding Gemini’s purported

“prefunding requirement” and the related cost of capital to trade on Gemini.

41. One area under evaluation was whether the Gemini Bitcoin Auction and the

Bitcoin Futures Contract were readily susceptible to manipulation.

42. In oral and written communications to Commission staff during the Relevant

Period, Gemini represented that it was a “full reserve” exchange and that it required all

transactions to be fully “pre-funded.” Gemini represented that the “prefunding” aspect of the

Gemini Exchange made the Gemini Exchange and the Gemini Bitcoin Auction, and thus the

Bitcoin Futures Contract, less susceptible to manipulation because it increased traders’ cost of

capital and made improper trading conduct more expensive to malicious actors.

43. For example, in or around July 25, 2017, orally and in writing, as part of the claim

that the Bitcoin Futures Contract was not readily susceptible to manipulation, Gemini personnel

asserted to Commission staff that Gemini required all transactions to be fully “prefunded.” In a

July 25, 2017 written submission to Commission staff, with respect to the Gemini Bitcoin

Auction, Gemini referred to its “prefunding requirements” for auction orders and stated that,

“[a]s with all Gemini orders, auction orders must be fully (pre-) funded.”

44. Similarly, in a September 2017 written submission to Commission staff, Gemini

cited the idea of “cost of capital” and the supposed prefunding requirement as one of the

“attributes that promote the integrity of the auction price and discourage manipulative conduct.”

According to Gemini, a Gemini market participant “was not permitted to place an order unless

they had enough funds in their account to place the order.” The claim was that these aspects

10
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 11 of 28

supposedly made manipulative trading tactics costlier, and thus less likely, for a malicious

market participant to undertake.

45. Such statements were false or misleading and omitted material information.

46. Gemini did not disclose its substantial efforts to reduce or largely eliminate

market participants’ cost of capital in order to facilitate greater trading volume on the Gemini

Exchange, including in the Gemini Bitcoin Auction.

Loans to Gemini customers

47. Gemini did not disclose to Commission staff, for example, that certain market

maker Gemini customers could and did obtain loans of digital assets controlled by Gemini

Principal-1 and Gemini Principal-2 from an entity they controlled (“Affiliate A”).

48. These loans were designed to facilitate trading on the Gemini Exchange,

including in the Gemini Bitcoin Auction.

49. The loans were unsecured.

50. The loans amounted to thousands of bitcoin.

51. The interest rates of these loans reached as low as 1% or 1.5%.

52. Gemini Principal-1 or Gemini Principal-2 caused these loans to issue in part to

induce increased trading on the Gemini Exchange and/or the Gemini Bitcoin Auction in

particular.

53. For example, certain of the loans extended by Affiliate A included terms

explicitly requiring the recipient customer to maintain certain trading volumes on the Gemini

Exchange. Other loans extended by Affiliate A to select Gemini customers were accompanied

by written or oral statements that the loan proceeds were to be used for trading on the Gemini

Exchange and in the Gemini Bitcoin Auction.

11
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 12 of 28

54. In effect, the select loan recipients could use Gemini Principal-1 and Gemini

Principal-2’s digital assets, rather than their own, to trade on the Gemini Exchange, including in

the Gemini Bitcoin Auction.

55. For example, shortly before the first Gemini Bitcoin Auction, a potential auction

participant expressed concerns to Gemini personnel about having cash or bitcoins (btc) in their

account in order to participate in the auction and asked for a line of credit. In response, a Gemini

personnel indicated, among other things, “I can ask [Gemini Principal-1 and Gemini Principal-2]

if they’d do a personal loan to you guys for btc.”

56. Shortly thereafter, Affiliate A extended a loan to that potential auction participant

to facilitate their participation in the Gemini Bitcoin Auction.

57. As Gemini Principal-1 explained to another Gemini personnel in an internal

Gemini communication in or around August 2017, regarding certain Gemini market maker

customers, “a number of them are using my capital, which makes up a material amount of their

balance sheet.”

58. The loans effectively allowed the borrowing Gemini customers to place orders on

the Gemini Exchange without fully prefunding their accounts with their own funds.

59. However, Gemini did not disclose to Commission staff that Gemini Principal-1

and Gemini Principal-2 made their own digital assets available to potential market makers to

trade with on the Gemini Exchange, including in the Gemini Bitcoin Auction.

60. Such false or misleading statements and omissions to Commission staff were

material, including to the evaluation of the compliance with the Act and Commission

Regulations of the Bitcoin Futures Contract.

12
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 13 of 28

61. For instance, digital asset loans, particularly unsecured or at low or below-market

rates, could reduce traders’ cost of capital—and the cost of manipulative conduct—and thus

potentially undermine a purported rationale as to why the Bitcoin Futures Contract was not

readily susceptible to manipulation. Digital asset loans could misleadingly skew the apparent

volume, liquidity, or number of participants trading on the Gemini Exchange and in the Gemini

Bitcoin Auction.

Advances and credits to Gemini customers

62. Gemini also did not disclose to Commission staff that before and during the

Relevant Period Gemini gave “advances” or “credits” of fiat currency or digital assets to select

customers, such that the funds could immediately be used for trading on Gemini, and that

Gemini provided such advances by directly crediting the customer’s account.

63. Gemini further did not disclose that at times it provided such “advances” or

“credits” in order to induce, facilitate, or fund trading on the Gemini Exchange or in the Gemini

Bitcoin Auction that would otherwise not be possible due to lack of funds in the customer’s

account.

64. While these advances or credits were outstanding, the auction participants could,

and at times did, use the advanced or credited funds to trade on Gemini and participate in the

Gemini Bitcoin Auction.

65. For example, to facilitate participation in the Gemini Bitcoin Auction in or around

late 2016, Gemini provided an advance “credit” of approximately $400,000 to a select Gemini

market maker customer so that the customer could participate in the Gemini Bitcoin Auction that

day, which the customer then did.

66. Soon after the Gemini Bitcoin Auction that day, Gemini debited the funds from

the customer’s account. Gemini personnel discussed this round-trip credit and debit to the

13
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 14 of 28

customer’s account as “a quick operational advance so they could cross themselves” in the

Gemini Bitcoin Auction.

67. As another example, in or around July 2017, Gemini extended a so-called

“operational advance” to a select market maker customer in the amount of 750 bitcoin in order to

induce greater trading volumes by that market participant on the Gemini Exchange.

68. Gemini records reflect that Principal-1 approved this “operational advance” of

750 bitcoin.

69. The market maker customer was not debited the advanced amount of 750 bitcoin

until in or around October 2017.

70. However, Gemini did not disclose to Commission staff that, effectively, Gemini

made its own digital assets and fiat currency available to customers to trade with on the Gemini

Exchange, including in the Gemini Bitcoin Auction, until such later time as the customer

completed the deposit of the customer’s funds at Gemini—potentially days or weeks later.

71. Such false or misleading statements and omissions to Commission staff were

material, including to the evaluation of the compliance with the Act and Commission

Regulations of the Bitcoin Futures Contract.

72. For instance, credits and advances, particularly those of more significant size or

duration, could reduce traders’ cost of capital—and the cost of manipulative conduct—and thus

potentially undermine a purported rationale as to why the Bitcoin Futures Contract was not

readily susceptible to manipulation. Credits and advances could misleadingly skew the apparent

volume, liquidity, or number of participants trading on the Gemini Exchange and in the Gemini

Bitcoin Auction.

14
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 15 of 28

G. False or Misleading Statements and Omissions Concerning Self-Trading

73. During the Relevant Period, Gemini made and caused to be made false or

misleading statements and omissions to Commission staff regarding the extent and possibility of

self-trading, or self-crossing, on the Gemini Exchange.

74. For example, in or around July 25, 2017, orally and in writing, as part of the claim

that the Bitcoin Futures Contract was not readily susceptible to manipulation, Gemini

represented to Commission staff that self-crossing was prohibited on Gemini. In a July 25, 2017

written submission to Commission staff, with respect to the Gemini Bitcoin Auction, Gemini

stated, “[s]elf-crossing prohibited.”

75. As another example, in response to further inquiries by Commission staff

concerning whether a Gemini Bitcoin Auction could occur when there is one participant trading

with itself, Gemini represented to the Commission in or around August 25, 2017, “No, we have

instituted self-trade prevention.”

76. As another example, in a submission on or around September 12, 2017, Gemini

indicated that “self-trade prevention” was among the “attributes that promote the integrity of the

auction price and discourage manipulative conduct,” explaining that “[w]e prohibit the same

market participant from crossing with himself or herself (either intentionally or unintentionally)

on a continuous trading order book or in a Gemini Bitcoin Auction.”

77. Such statements were false or misleading and omitted material information.

78. Such false or misleading statements and omissions to Commission staff

concerning self-trading were material, including to the evaluation of the compliance with the Act

and Commission Regulations of the Bitcoin Futures Contract.

79. For instance, self-trading could lead to manipulative conduct, thus implicating

whether the Bitcoin Futures Contract was in fact readily susceptible to manipulation. Self-

15
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 16 of 28

trading could misleadingly skew the apparent volume, liquidity, or number of participants

trading on the Gemini Exchange and in the Gemini Bitcoin Auction.

Lack of effective self-trading prevention before May 2017

80. In fact, before in or around May 2017, Gemini did not effectively prohibit self-

trading in Gemini Bitcoin Auctions or have any technological means to prevent self-trading from

occurring in Gemini Bitcoin Auctions. Indeed, from the inception of the Gemini Bitcoin Auction

in 2016 to around May 2017, self-trading in Gemini Bitcoin Auctions on occasion actually

occurred.

81. Self-trading that occurred in the Gemini Bitcoin Auction during this period could

account for a significant portion of the Gemini Bitcoin Auction’s total trading volume on a given

day.

82. For example, for one auction in December 2016, approximately 70% of the total

auction trading volume resulted from a single auction participant trading with itself.

Flawed self-trading prevention after May 2017

83. In fact, even after Gemini applied a technological mechanism aimed at preventing

self-trading in the Gemini Bitcoin Auction, self-trading continued to occur on occasion during

and beyond the end of the Relevant Period.

84. In fact, for example, the same market participant could effectively enter into

whole or partially offsetting trades with himself or herself in a Gemini Bitcoin Auction because

there was not self-trade prevention between the Gemini continuous order book and the Gemini

auction-only order book.

85. In fact, in or around November 2017—after Gemini had made numerous

statements to Commission staff concerning self-trading and shortly before the Bitcoin Futures

Contract was listed—a Gemini customer inquired as to a mechanism that would prevent that

16
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 17 of 28

customer’s continuous trading order (e.g., an order to sell) from crossing that same customer’s

auction-only order (e.g., an order to buy) in a Gemini Bitcoin Auction.

86. Rather than address such risk of a customer effectively trading with itself, Gemini

personnel discussed the issue, decided it was too hard to deal with, and left it up to the market

maker customers (at times abbreviated as MMs).

87. As Gemini Principal-1 then wrote in an internal message to several other Gemini

personnel regarding self-crossing and the Gemini Bitcoin Auction: “it’s really up to the MMs . . .

MM’s are grownups, they can figure it out.”

H. False or Misleading Statements and Omissions Concerning Fee Rebates and

Overrides

88. During the Relevant Period, Gemini made and caused to be made false or

misleading statements and omissions to Commission staff regarding trading fee rebates and fee

“overrides.”

89. For example, in a July 25, 2017 written submission to Commission staff, with

respect to the Gemini Bitcoin Auction, Gemini personnel represented that its “[m]arket maker

trading fee rebates encourage participation.”

90. Then, in or around August 25, 2017, in response to Commission staff requests for

details concerning fee rebates and in particular Gemini’s market maker trading fee rebate

program, Gemini indicated to Commission staff: (a) that Gemini had no specifically defined

market maker program; (b) that Gemini had implemented a trading fee program that was

available to all Gemini market participants; and (c) that the public fee schedule on Gemini’s

website at the time reflected details of the program available to all Gemini customers.

91. Such statements and omissions were false or misleading and omitted material

information.

17
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 18 of 28

92. Such false or misleading statements and omissions to Commission staff

concerning fee rebates and overrides were material, including to the evaluation of the compliance

with the Act and Commission Regulations of the Bitcoin Futures Contract.

93. For instance, fee rebates and overrides could reduce traders’ cost of capital—and

of manipulative conduct—and thus potentially undermine a purported rationale as to why the

Bitcoin Futures Contract was not readily susceptible to manipulation. Fee rebate and overrides

could lead to wash trading or other types of abusive trading activities that affect prices. Fee

rebates and overrides could misleadingly skew the apparent volume, liquidity, or number of

participants trading on the Gemini Exchange and in the Gemini Bitcoin Auction.

Undisclosed Bespoke Fee Rebates and Overrides

94. In fact, Gemini at times before and during the Relevant Period entered into

bespoke or custom fee arrangements with market participants, including market makers, that

were not available to all Gemini market participants and that were not disclosed to the public on

Gemini’s website.

95. In fact, Gemini at times offered special fee rebate incentives and “fee overrides”

to preferred market participants, including incentives designed to induce trading in the Gemini

Bitcoin Auction, and including at more favorable terms than those on the public fee schedule.

96. For example, in or around August 2017, Gemini records reflect that Gemini paid

more than $90,000 to a Gemini customer as a rebate, based on the Gemini market maker

customer’s participation in the Gemini Bitcoin Auction the previous month.

97. In fact, Gemini offered special fee rebate incentives that could be and at times

were exploited by customers to engage in collusive, non-bona-fide, wash, or self-trading

described above.

18
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 19 of 28

98. For example, in or around August 2017, Gemini personnel learned that certain

Gemini customers had generated millions of dollars of fee rebates over a period of weeks

essentially by trading large volumes among themselves.

99. Upon learning of the significant rebates accrued to the Gemini customers, Gemini

personnel expended significant resources to investigate. Gemini Principal-1 and Gemini

Principal-2 were involved in these efforts.

100. In or around August 30, 2017, Gemini suspended and later terminated two Gemini

personnel involved in arranging or approving the fee rebates.

101. One of the suspended personnel was closely involved in the engagement with

Commission staff concerning the Bitcoin Futures Contract.

102. This person also had been a principal speaker on behalf of Gemini during the in-

person meetings with Commission staff on July 25, 2017, and August 28, 2017.

103. Gemini Principal-1 and Gemini Principal-2 believed at that time that the

suspended Gemini personnel were not trustworthy. The two employees were later terminated.

104. Gemini considered the trading as improper and the rebates as fraudulent.

105. Gemini also initiated arbitration proceedings against the customers and the

employees.

106. Gemini expended millions of dollars in investigating and litigating these issues

during and beyond the end of the Relevant Period.

107. During the Relevant Period, in addition to not informing Commission staff of the

existence of the bespoke or custom fee arrangement, Gemini did not inform Commission staff

that it had chosen to suspend an employee who had been speaking for Gemini at the meetings or

19
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 20 of 28

that Gemini Principal-1 and Gemini Principal-2 had formed the belief that this employee was not

trustworthy.

I. False or Misleading Statements and Omissions Concerning Trading Volume

and Liquidity

108. During the Relevant Period, Gemini made and caused to be made false or

misleading statements and omissions to Commission staff regarding the Gemini Exchange’s

trading volume and liquidity, which were relevant to evaluating the Gemini Bitcoin Auction and

the Bitcoin Futures Contract.

109. For example, Gemini representatives made a series of statements to Commission

staff concerning trading volume and liquidity on the Gemini Exchange. For example, in a July

25, 2017 written submission to Commission staff, Gemini presented auction and trading

information, including auction trading volume information. In or around August 1, 2017,

Gemini submitted, or caused to be submitted, data underlying the auction and trading

information cited in its July 25, 2017 written submission, including auction trading volume data.

110. Gemini also provided information describing the number of market participants

who placed orders in the Gemini Exchange and the moving average of the Gemini Exchange’s

trading volume during a twenty-day period in August 2017.

111. Such statements also formed part of the self-certification to the Commission of

the Bitcoin Futures Contract on or around December 1, 2017.

112. Such statements were false or misleading and omitted material information.

113. Such false or misleading statements and omissions to Commission staff

concerning the Gemini Exchange’s and the Gemini Bitcoin Auction’s operations, such as trading

volume, liquidity, and number of participants, were material, including to the evaluation of the

compliance with the Act and Commission Regulations of the Bitcoin Futures Contract.

20
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 21 of 28

114. For instance, the nature of the apparent volume, liquidity, or number of

participants trading on the Gemini Exchange and in the Gemini Bitcoin Auction are factors

relevant to evaluating whether such a futures contract is readily susceptible to manipulation.

115. Gemini did not disclose and omitted that the information included trading by

Gemini customers who had received loans from Affiliate A and that, effectively, Gemini

Principal-1 and Gemini Principal-2 had made their own digital assets available to potential

market makers to trade with on the Gemini Exchange, including in the Gemini Bitcoin Auction.

116. Gemini did not disclose and omitted that the information included trading by

Gemini customers who had been provided advances or credits by Gemini to encourage or permit

those customers to trade on the Gemini Exchange, including in the Gemini Bitcoin Auction, until

such later time as the customer completed deposit of the customer’s funds at Gemini—

potentially days or weeks later.

117. Gemini did not disclose and omitted that the information included trading by

customers who were offered special fee rebate incentives and “fee overrides” to preferred market

participants, including incentives designed to induce trading in the Gemini Bitcoin Auction.

118. Gemini did not disclose and omitted that the information included trading during

which Gemini had limited or ineffective preventions of self-trading or collusive trading, and that

such trading in fact had occurred on the Gemini Exchange.

119. Gemini did not disclose and omitted that the information included substantial

amounts of trading by certain Gemini customers who had generated millions of dollars of

bespoke fee rebates over a period of weeks essentially by large volumes of trading among

themselves.

* * *

21
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 22 of 28

120. Gemini made, and caused to be made, such false or misleading statements and

omissions during the Relevant Period to Commission staff orally and in writing, by and through

Gemini personnel as well as through others such as the DCM.

121. Gemini personnel involved in the false or misleading statements and omissions

knew or reasonably should have known the statements and omissions to be false or misleading.

122. The information directly and indirectly conveyed by Gemini to Commission staff

related to a swap, or a contract of sale of a commodity, in interstate commerce, or for future

delivery on or subject to the rules of any registered entity.

123. Among other things, the information directly and indirectly conveyed by Gemini

to Commission staff concerning the Gemini Exchange, the Gemini Bitcoin Auction, and/or the

Bitcoin Futures Contract was relevant to the evaluation of whether the Bitcoin Futures Contract

complied with the core principles for contract markets set forth in the Act and Regulations, as

required by law, such as whether it was readily susceptible to manipulation.

124. The false or misleading information directly and indirectly conveyed by Gemini

to Commission staff was relevant to and impeded the Commission’s oversight role. The false or

misleading statements and omissions prevented the Commission from having a complete and

true picture from which to evaluate whether, in what manner, under what conditions, and subject

to what changes the proposed Bitcoin Futures Contract should be allowed to be listed or continue

to be listed following self-certification.

V. VIOLATIONS OF THE COMMODITY EXCHANGE ACT AND REGULATIONS

Count I—False or Misleading Statements or Omissions to the Commission

Violations of Section 6(c)(2) of the Act, 7 U.S.C. § 9(2)

125. Paragraphs 1 through 124 are re-alleged and incorporated herein by reference.

126. 7 U.S.C. § 9(2) makes it unlawful—

22
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 23 of 28

[F]or any person to make any false or misleading statement of a

material fact to the Commission, including in any registration
application or any report filed with the Commission under this
chapter, or any other information relating to a swap, or a contract of
sale of a commodity, in interstate commerce, or for future delivery
on or subject to the rules of any registered entity, or to omit to state
in any such statement any material fact that is necessary to make any
statement of a material fact made not misleading in any material
respect, if the person knew, or reasonably should have known, the
statement to be false or misleading.

127. During the Relevant Period, as described above, Gemini personnel violated

7 U.S.C. § 9(2) by, among other things, making and causing to be made false or misleading

statements of a material fact to the Commission, including information relating to a swap, or a

contract of sale of a commodity, in interstate commerce, or for future delivery on or subject to

the rules of any registered entity, and omitting to state material facts necessary in order to make

statements made not untrue or misleading, such as the following:

A. Statements and omissions concerning the purported track record, function, and

reliability of the Gemini Bitcoin Auction;

B. Statements and omissions concerning the extent to which Gemini’s purported

prefunding requirement and the related cost of capital to trade on Gemini made

the Gemini Bitcoin Auction less susceptible to manipulation, while omitting the

extent to which Principal-1, Principal-2, and Gemini made their own funds

available for customers to trade on the Exchange;

C. Statements and omissions concerning self-trading on the Gemini Exchange, while

failing to disclose that Gemini customers could and did trade with themselves,

e.g., self-crossing, as well as could and did engage in collusive or wash trading;

23
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 24 of 28

D. Statements and omissions concerning Gemini’s fee override and rebate program,

while omitting the extent to which Gemini offered bespoke rebates and other

incentives to select market maker customers; and

E. Statements and omissions concerning the purported volume and liquidity of

trading on the Gemini Exchange and/or in the Gemini Bitcoin Auction, and the

number of participants therein, while omitting the extent to which the information

included various instances of self-crossing, wash or collusive trading, bespoke

rebates, fee overrides and rebates; and trading with funds provided by Gemini,

Gemini Principal-1, or Gemini Principal-2.

128. Gemini personnel knew or reasonably should have known the statements and

omissions described above to be false or misleading.

129. The statements and omissions were material to the Commission’s evaluation of

the Bitcoin Futures Contract.

130. Gemini personnel engaged in the acts, practices, or conduct described above

while acting within the scope of their agency, employment, and office at Gemini. Accordingly,

Gemini is liable pursuant to Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B), and 17 C.F.R.

§ 1.2 (2021), as a principal for Gemini personnel’s acts, omissions, or failures in violation of

7 U.S.C. § 9(2).

131. By this conduct, Gemini violated 7 U.S.C. § 9(2).

132. Each act of making any false or misleading statement of a material fact to the

Commission of any information relating to a swap, or a contract of sale of a commodity, in

interstate commerce, or for future delivery on or subject to the rules of any registered entity, or

omitting to state in any such statement any material fact that is necessary to make any statement

24
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 25 of 28

of a material fact made not misleading in any material respect, if the person knew, or reasonably

should have known, the statement to be false or misleading, including but not limited to those

specifically alleged herein, is alleged as a separate and distinct violation of 7 U.S.C. § 9(2).

VI. RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that the Court, as authorized by

Section 6c of the Act, 7 U.S.C. § 13a-1, and pursuant to its own equitable powers, enter:

A. An order finding that Defendant violated Section 6(c)(2) of the Act,

7 U.S.C. § 9(2);

B. An order of permanent injunction enjoining Defendant and any other person or

entity associated with them Defendant, including but not limited to affiliates, agents, servants,

employees, assigns, attorneys, and all persons in active concert or participation with Defendant,

including any successor thereof, from:

i. Engaging, directly or indirectly, in conduct in violation of 7 U.S.C. § 9(2);

ii. Trading on or subject to the rules of any registered entity (as that term is

defined in Section 1a(40) of the Act, 7 U.S.C. § 1a(40);

iii. Entering into any transactions involving “commodity interests” (as that

term is defined in Regulation 1.3, 17 C.F.R. § 1.3 (2021)), for its own

personal account(s) or for any account in which Defendant has a direct or

indirect interest;

iv. Having any commodity interests traded on Defendant’s behalf;

v. Controlling or directing the trading for or on behalf of any other person or

entity, whether by power of attorney or otherwise, in any account

involving commodity interests;

25
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 26 of 28

vi. Soliciting, receiving, or accepting any funds from any person for the

purpose of purchasing or selling any commodity interests;

vii. Applying for registration or claiming exemption from registration with the

Commission in any capacity, and engaging in any activity requiring such

registration or exemption from registration with the Commission, except

as provided for in Regulation 4.14(a)(9), 17 C.F.R. § 4.14(a)(9) (2021);

and/or

viii. Acting as a principal (as that term is defined in Regulation 3.1(a),

17 C.F.R. § 3.1(a) (2021)), agent, or any other officer or employee of any

person (as that term is defined in Section 1a(38) of the Act,

7 U.S.C. § 1a(38), registered, exempted from registration, or required to

be registered with the Commission except as provided for in

17 C.F.R. § 4.14(a)(9));

C. An order requiring Defendant to pay civil monetary penalties of not more than the

civil monetary penalty prescribed by Section 6c(d)(1) of the Act, 7 U.S.C. § 13a-1(d)(1), as

adjusted for inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act

Improvements Act of 2015, Pub. L. 114–74, 129 Stat. 584, title VII, Section 701, see Regulation

143.8, 17 C.F.R. § 143.8 (2021), for each violation of the Act or Regulations, plus post-judgment

interest;

D. An order directing Defendant, as well as any successors thereof, to disgorge,

pursuant to such procedure as the Court may order, all benefits received including, but not

limited to, trading profits, revenues, salaries, commissions, fees, or loans derived directly or

26
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 27 of 28

indirectly from acts or practices which constitute violations of the Act and Regulations, as

described herein, and pre- and post-judgment interest thereon from the date of such violations;

E. An order requiring Defendant and any successors thereof to pay costs and fees as

permitted by 28 U.S.C. §§ 1920 and 2412(a)(2); and

F. An order providing such other and further relief as the Court deems proper.

* * *

27
 Case 1:22-cv-04563 Document 1 Filed 06/02/22 Page 28 of 28

VII. DEMAND FOR JURY TRIAL

Plaintiff hereby demands a jury trial.

Dated: June 2, 2022

COMMODITY FUTURES TRADING

COMMISSION

By:
David Oakland
Senior Trial Attorney
doakland@cftc.gov

Alejandra de Urioste
K. Brent Tomer
Chief Trial Attorneys
adeurioste@cftc.gov
ktomer@cftc.gov

Manal M. Sultan
Deputy Director
msultan@cftc.gov

Commodity Futures Trading Commission

Division of Enforcement
Ted Weiss Federal Office Building
290 Broadway, Suite 600
New York, NY 10007
Phone: (646) 746-9700
Fax: (646) 746-9888

ATTORNEYS FOR PLAINTIFF

COMMODITY FUTURES TRADING
COMMISSION

28