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Gemini sued for allegedly misleading statements over bitcoin

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Yahoo Finance’s David Hollerith joins the Live show to discuss crypto exchange Gemini being sued for misleading statements over bitcoin.

Video Transcript

- Bitcoin hovering just under 30,000 as we closed out the week. Let's check in with Yahoo Finance's David Hollerith on all things crypto. David, you have a favorite donut?

DAVID HOLLERITH: Yeah, I don't know. I like strawberry a lot too. But I'd say in the 7-Eleven donuts, you know, it's more of a lottery. Sometimes you'll get a decent one, but, you know, it's definitely toss up.

- Talk to us about prices. What you got?

DAVID HOLLERITH: Yeah, yeah, so on the markets, the crypto assets have been seeing generally a consolidation. This was, sort of, leading into the US employment data release. And they're still down on the day. Generally across, just within the asset class, investors are, sort of, sending flows towards Bitcoin. That's been, sort of, a narrative. We've been calling it, sort of, a flight to quality ever since the collapse of the TerraUSD stablecoin, which is-- obviously sent a shakeup in the market. Otherwise, the macroeconomic landscape has not really changed and that, sort of, leads into this Gemini news.

So Gemini yesterday had two big developments, none of which were positive. In the morning, the founders Cameron and Tyler announced that they would be cutting about approximately 10% of the workforce. Now, this falls in line with things that have come from-- the same news that has come from Robinhood and Coinbase. But, interestingly, a few hours later that day, the CFTC filed a civil lawsuit against Gemini for happenings they had about five years ago in 2017. Now, this was a fairly complicated situation.

So back in 2017, there was not really a Bitcoin futures product that exchanges would trade and, you know, certain futures clearinghouses were in the-- in competition to see who could list the first Bitcoin futures product. Now, during that scenario, Gemini was trying to offer pricing data to the CBOE in an effort to, sort of, be part of this. And to do that, they had to offer information to the Commodities and Futures Trading Commission, particularly about their exchange liquidity, how many users they had, and whether or not that-- the pricing data was at all-- it could be manipulated based on the size of liquidity.

So from the lawsuit, we've had allegations that have surfaced, which have basically said that Gemini was-- gave misleading comments about the liquidity and, sort of, trading practices it allowed on its exchange. In particular, the company said that all of its customers had fully funded accounts. And this turned out not to be the case, per the CFTC's allegations, which found that two Gemini insiders provided certain customers with unsecured loans.

Added to that, the exchange also gave cash advances in the hundreds of thousands of dollars to traders and they also offered trading fee rebates to certain preferred high trading customers of the platform. So the CFTC is looking to ban Gemini from derivatives trading, which is interesting because this futures trading product isn't really used anymore and it would not necessarily impact Gemini that much. They're also looking for some, kind of, charge or payment.

And probably the worst thing that could happen for Gemini would be, sort of-- they're asking for the disgorgement of illegally gotten gains. So any of the derivatives revenue they received from such a partnership for offering misleading statements they would have to give in payment to the CFTC.

- Yahoo Finance's David Hollerith. Thanks so much.