Former executives at cryptocurrency exchange Gemini Trust Co were the subject of a now-closed criminal investigation surrounding the company’s debut of the first US-related Bitcoin futures contract, according to a court filing.
(Bloomberg) — Former executives at cryptocurrency exchange Gemini Trust Co were the subject of a now-closed criminal investigation surrounding the company’s debut of the first US-related Bitcoin futures contract, according to a court filing.
The probe focused on issues at the heart of a civil case brought by the Commodity Futures Trading Commission in June. Regulators accused the Winklevoss twins’ exchange of misleading authorities about how it would prevent manipulation in Bitcoin prices that were to serve as a reference for the derivatives based on the cryptocurrency.
As part of the criminal investigation that had started earlier, the Manhattan US Attorney’s Office subpoenaed laptops from two former executives — Benjamin Small and Shane Molidor, according to a court filing last week by lawyers for Gemini. The exchange handed over the company-issued laptops to federal prosecutors in late 2017 or early 2018, according to a person familiar with the matter.
The CFTC is now pushing to examine the laptops as part of its own civil case against Gemini. According to court filings, one of the employees, either Small or Molidor, “drafted, edited, reviewed and made statements to CFTC staff concerning the bitcoin futures contract.”
During a hearing about pretrial information sharing in federal court in Manhattan on Monday, Gemini’s lawyer John Baughman said that one of the laptops was encrypted and his team was attempting to find the password.
Small, the former chief operating officer, became a whistleblower after leaving the exchange. He unsuccessfully sued Gemini last year, alleging the company fired him for blowing the whistle on improper transactions. An arbitrator found Small was properly fired in 2017 for being “grossly negligent” in his duties, resulting in a huge financial losses for Gemini.
Molidor worked in business development at Gemini. He was appointed chief executive officer of AscendEX, formerly BitMax, last year.
After a lengthy inquiry, prosecutors returned the laptops to Gemini last year. No criminal charges were filed and the probe is now closed. The investigation highlights the intense focus on cryptocurrency exchanges in recent years with inquiries from regulators often crossing over with prosecutors.
Gemini had refused to let the CFTC copy the entire contents of the laptops, but the regulator will be allowed to provide search terms. Gemini said it originally provided the computers to prosecutors “in connection with an investigation into potential wrongdoing by two Gemini employees,” according to last week’s filing.
Gemini and Molidor didn’t immediately respond to requests for comment. Small couldn’t immediately be reached for comment.
Read More: Bitcoin Manipulation Said to Be Focus of U.S. Criminal Probe
According to the CFTC, Gemini loaned market makers funds to induce more trading on the exchange, which allegedly reduced protections against price manipulation. The regulator also said that Gemini staff decided to leave it to market-making firms to figure out how to keep people from trading with themselves, saying in one internal message that the traders “‘are grownups, they can figure it out,’” according to the lawsuit.
The agency said in the complaint that self-trading, which can distort markets, only rarely occurred on the platform after the exchange took steps in May 2017 to prevent it.
In January, the Securities and Exchange Commission sued crypto brokerage Genesis Global Capital over its role in the Gemini Earn Program, which let customers loan their assets in exchange for interest payments. This amounted to the offering of unregistered securities, the SEC alleged.
The case is Commodity Futures Trading Commission v. Gemini Trust Co., 22-cv-04563, US District Court, Southern District of New York (Manhattan).
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