America’s commodities regulator has reached a $5 million settlement with Gemini Trust Companyjust days before the chairman of the supervisory authority is to step down from the role.
On January 6, an attorney representing the Commodity Futures Trading Commission (CFTC) informed the US District Court for the Southern District of New York that it had reached a settlement with Gemini, the New York-based parent of exchange of digital assets with the same name run by brothers Cameron and Tyler Winklevoss.
The settlement stems from a lawsuit the CFTC filed in 2022 accuses Gemini of “making false or misleading statements of material fact” regarding a BTC-based exchange-traded product (ETP).
The untrue claims in question were made in 2017 as Gemini prepared to launch its ETP. The CFTC had rejected Gemini’s previous ETP application based on the regulator’s view that the exchange lacked sufficient liquidity to support ETPs of this nature.
To ensure a more favorable ruling the second time around, two unspecified individuals at Gemini — nudge nudge, wink wink — lent out “thousands” of BTC to market makers at rates as low as 1% so that the ETP could maintain sufficient trading volume. These loans were not disclosed to the CFTC, which was told by Gemini that all ETP trades on the platform were fully pre-funded.
The settlement will have Gemini pay a $5 million penalty without the pesky requirement to admit or deny the CFTC’s allegations. Gemini has also agreed to a permanent injunction against making similar false or misleading statements in the future.
The case was scheduled to go to trial on Jan. 21, but the settlement halts that possibility, assuming Judge Alvin Hellerstein approves the settlement. As late as December 23, Gemini was stationary submit motions is objecting to the CFTC’s plans to offer some evidence and arguments at trial, so the sudden willingness to make a deal is raising some eyebrows.
Outgoing Behnam issues ‘gap’ warning
Apparently eager to go out on a high note, CFTC Chairman Rostin Behnam announced on January 7 that he would step down from that role on January 20, the same day that US President-elect Donald Trump is sworn in. Behnam was appointed by outgoing President Joe Biden, making him a clear target for Trump’s executive eject button.
A seven-year veteran of the CFTC with four years as chairman, Behnam said his tenure focused on “identifying, assessing and managing risks in our regulated markets,” including “establishing appropriate safeguards to minimize disruption.”
The CFTC’s 2024 Report shows the regulator recorded a record $17.1 billion in monetary relief in its most recent fiscal year, including $2.6 billion in financial penalties for rule breakers. Most of this came from digital asset operators, including a record $12.7 billion in compensation related to the November 2022 case of Sam Bankman-Friedpp FTX exchange.
While Behnam repeatedly pressured Congress to make the CFTC the chief regulator of “non-securities digital assets,” he leaves without seeing that goal accomplished. In a new interview with Financial TimesBehnam warned of the “gap” that needed to be filled to prevent “crypto” crooks from doing harm before authorities can intervene.
“You still have a large part of the digital asset space unregulated in the US regulatory system and it’s important – given the adoption we’ve seen by some traditional financial institutions, the huge demand for these products from both individuals and institutional investors – that we fill this hatch.”
Behnam cautioned against taking any “shortcuts” in creating rules for digital assets, adding that it’s “important to be very disciplined and intentional about how we write rules ultimately that are driven from the law.” The lines separating legal from illegal assets are blurred, and Behnam urged his successor to keep pushing lawmakers to establish “clearer lines of what we see as permissible and impermissible.”
The Financial Innovation and Technology for the 21st Century Act (FIT21) would have given the CFTC authority over “digital commodities,” a category expressly devised for prominent tokens such as BTC and ETH. The CFTC already oversees the derivatives trading of these two tokens.
But while FIT21 was approved by the House of Representatives this spring, the Senate never got around to addressing it. Hopes were high that the post-election lame duck session of Congress might see some movement—and reports circulated last November that Trump agreed that the CFTC would take a position on regulating digital assets — but it wouldn’t be, bringing the process back to square one.
It wasn’t Behnam’s only setback last year. Behnam long sought to block CFTC-approved prediction market Kalshi from offering markets on election results, equating the practice to gambling. A federal court overturned the CFTC in October, handing Behnam a very public loss and earning him enmity from many in the “crypto space.” (Kalshi added the ability to deposit USDC stablecoins later that month.)
Who’s next?
Trump has not yet signaled who might succeed Behnam as the CFTC’s new head. A few names have been bandied about as potential candidatesincluding Perianne Boring, founder/CEO of trade group The Digital Chamber (TDC); former CFTC Commissioner Jill Sommers; and current CFTC Commissioners Summer Mersinger and Caroline Pham.
After Behnam’s announcement, Reuters suggested that Mersinger or Pham were the most likely candidates to be named interim chairman, as they are Republican appointees. But former commissioner Brian Quintenz – currently head of policy at the pro-crypto venture capital group a16z—is also up for the permanent gig, along with Josh Sterling and Neal Kumar, two other former CFTC chiefs with digital asset experience.
Behnam will resign same day as Gary Genslerthe outgoing chairman of the Securities and Exchange Commission (SEC). Gensler adopted a much more antagonistic approach to regulated digital assets than Behnam, earning the wrath of crypto operators and Trump himself, who vowed to fire Gensler “on day one” of his new administration.
Don’t let your cart turn into a pumpkin again
Back to the Winklevii for a moment, the twins donated millions to Trump’s 2024 election campaignwho will be sworn in for his second term as president on January 20. But unlike some of their fellow contributors, the twins have yet to publish any contributions to Trump’s inauguration committees, which are on pace to set a new record (beating Trump’s 2016 record) for funds raised to celebrate a president-elect.
Robinhood (NASDAQ: HOOD) has donated $2 million to Trump’s inaugural fund, while rival exchanges Coin base (NASDAQ: COIN) and Kraken each raised $1 million. But for now, the brass ring belongs Ripple Labs CEO Brad Garlinghouse, who has pledged $5 million of Ripple’s XRP token (and apparently met Trump at Mar-a-Lago on January 6 – look kids, you get what you pay for).
All of the above donors will receive tickets to the swearing-in ceremony, inaugural ball and other off-leash soirées. But that’s not enough for the crypto sector, which is throwing its own “Cryptoball” on January 17 to celebrate both Trump’s victory and the sector’s role in enabling that victory.
The Crypto Ball, held at the Andrew W. Mellon Auditorium in Washington, is described as “A Celebration of New Beginnings: American Innovation.” The 800 general admission tickets go for the low, low price of $2,500 each, while sponsorship opportunities run from $150,000 to $1 million.
The black-tie affair is hosted by conference promoters BTC Inc, which hosted the confab in Nashville where Trump spoke July last year. Co-hosts include Coinbase’s astroturf ‘grassroots’ group Stand With Crypto, Exodus crypto wallet and digital assets Anchorage Digital. Sponsors include Coinbase, Galaxy, MetamaskMysten Labs and Sui.
Trump must be a Janet Jackson fan because he really likes the word nasty and his attitude towards people who seek his favor suggests little “what have you done for me lately.” So Winklevii, while you have the checkbook to pay the CFTC, maybe write another one so you don’t spend the next four years on the outside looking in.
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