Commodity Futures Trading Commission v. Gemini Trust Company, LLC

Background

Gemini Trust Company, LLC operated a cryptocurrency exchange and proposed adding a cash-settled bitcoin futures contract to its business. The contract would be traded on the Cboe Futures Exchange. The exchange initially certified the contract as eligible for listing, but the Commodity Futures Trading Commission investigated and requested additional information.

A central regulatory requirement was that the futures contract not be “readily susceptible to manipulation.” The Commission was particularly concerned because the contract would be settled using the final price from Gemini’s bitcoin auction. Gemini presented information about measures it said protected the auction’s integrity, including prefunding requirements, a ban on self-trading, market-maker rebates, liquidity, transparency, and trading volume.

Gemini helped prepare, edit, approve, and communicate this information. Some information was presented directly to Commission officials at a meeting and in a telephone conversation. Other information was sent through the Cboe Futures Exchange, including responses on Gemini letterhead, a memorandum, and a product self-certification letter that Gemini helped draft and approve.

Claim and Motions

The Commission brought one claim under Section 6(c)(2) of the Commodity Exchange Act, 7 U.S.C. § 9(2). The statute prohibits a person from making a materially false or misleading statement to the Commission, or omitting material information needed to prevent a statement from being misleading, when the person knew or reasonably should have known of the falsity or misleading nature.

After discovery, both sides moved for partial summary judgment. Gemini argued that it could not be liable because the Cboe Futures Exchange was the party that directly transmitted information to the Commission. The Commission argued that Gemini was the “maker” of the statements and that 32 representations were false and misleading.

Maker Liability

The court rejected Gemini’s argument that the Supreme Court’s decision in Janus Capital Group v. First Derivative Traders prevented liability. The court explained that Janus involved a different type of private securities claim, while this case involved the Commission’s express enforcement authority under the Commodity Exchange Act.

The court held that liability could reach a person who controlled the substance of information conveyed to the Commission and knew it would be shared as part of the Commission’s decision-making process. Gemini drafted, edited, approved, and supplied the information, communicated some of it directly to the Commission, and authorized other information to be sent through the Cboe Futures Exchange. The court therefore held under Federal Rule of Civil Procedure 56(g) that Gemini was the maker of the statements at issue.

Whether the Statements Were False or Misleading

The court declined to decide on summary judgment whether the 32 representations were materially false or misleading. It concluded that factual issues remained and that the representations overlapped with one another, were communicated at different times and in different ways, and collectively supported the proposition that the futures contracts were not readily susceptible to manipulation.

The court held that a jury should consider the alleged statements as a whole and decide which, if any, were materially false or misleading. The opinion did not resolve those questions in the Commission’s favor at the summary-judgment stage.

Disposition

The court’s conclusion states: “Summary judgment is denied, except as to the issue of whether Gemini was the maker of the alleged misrepresentations.” The pending motions in limine and motions to seal at ECF Nos. 110, 113, and 122 were withdrawn without prejudice by consent of the parties, and the Clerk was directed to terminate the open motions at ECF Nos. 97, 110, 113, and 122. Judge Alvin K. Hellerstein entered the order.