CFTC Chair Behnam quitting; Winklevii reach $5M settlement

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America’s commodities regulator has reached a $5 million settlement with Gemini Trust Company, just days before the regulator’s chairman is due to step down from the role.

On January 6, an attorney representing the Commodity Futures Trading Commission (CFTC) informed the U.S. District Court for the Southern District of New York that it had reached a settlement with Gemini, the New York-based parent of the digital asset exchange of the same name run by brothers Cameron and Tyler Winklevoss.

The settlement stems from a lawsuit the CFTC filed in 2022 accusing Gemini of “making false or misleading statements of material facts” regarding a BTC-based exchange-traded product (ETP).

The untruthful statements in question were made in 2017 as Gemini was preparing 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 kind.

To ensure a more favorable ruling the second time around, two unspecified individuals at Gemini—nudge nudge, wink wink—loaned “thousands” of BTC to market-makers at interest rates as low as 1% so the ETP could maintain adequate trading volume. These loans weren’t disclosed to the CFTC, which was told by Gemini that all the ETP trades on the platform were fully pre-funded.

The settlement will see Gemini pay a $5 million penalty without the pesky requirement of admitting or denying the CFTC’s allegations. Gemini has also agreed to a permanent injunction against making similarly false or misleading statements in the future.

The case was scheduled to go to trial on January 21 but the settlement nips that possibility in the bud, assuming Judge Alvin Hellerstein approves the settlement. As recently as December 23, Gemini was still filing motions objecting to the CFTC’s plans to offer certain evidence and arguments at trial, so the sudden willingness to cut a deal raises a few eyebrows.

Outgoing Behnam issues warning re regulatory ‘gap’

Apparently eager to go out on a high note, CFTC Chairman Rostin Behnam announced on January 7 that he would be stepping down from that role on January 20, the same day that U.S. President-elect Donald Trump takes his oath of office. Behnam was appointed by outgoing President Joe Biden, making him a ready target for Trump’s executive ejector button.

A seven-year veteran of the CFTC with four years as chairman, Behnam said his tenure focused on “identifying, assessing and addressing risks within our regulated markets,” including “establishing appropriate guardrails to minimize disruption.”

The CFTC’s 2024 report shows the regulator notched a record $17.1 billion in monetary relief in its most recent fiscal year, including $2.6 billion in financial penalties on rulebreakers. The bulk of this came from digital asset operators, including a record $12.7 billion in restitution related to the November 2022 downfall of Sam Bankman-Fried’s FTX exchange.

While Behnam repeatedly pressed Congress to make the CFTC the chief regulator of “digital assets that are not securities,” he leaves without seeing that goal fulfilled. In a new interview with the Financial Times, Behnam warned of the regulatory ‘gap’ that needed to be filled to prevent ‘crypto’ crooks from doing damage before the authorities can intervene.

“You still have a large swath of the digital asset space unregulated in the U.S. regulatory system and it’s important—given the adoption we’ve seen by some traditional financial institutions, the huge demand for these products by both the retail and institutional investors—that we fill this gap.”

Behnam warned against taking any “short-cuts” in crafting digital asset regulations, 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 lawful from unlawful assets are blurry, and Behnam urged his successor to continue pressing legislators to establish “more clear cut lines of what we view 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 explicitly carved out for prominent tokens such as BTC and ETH. The CFTC already has oversight of the derivatives trading of these two tokens.

But, while FIT21 was approved by the House of Representatives last spring, the Senate never got around to tackling 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 the CFTC should take point on regulating digital assets—but it was not to be, putting the process back to square one.

That wasn’t Behnam’s only setback last year. Behnam long tried to block the CFTC-approved Kalshi prediction market from offering markets on election outcomes, equating the practice with gambling. A federal court overruled the CFTC in October, handing Behnam a highly public loss and earning him the enmity of many in the ‘crypto’ space. (Kalshi added the option of depositing in USDC stablecoins later that same month.)

Who’s next?

Trump has yet to signal who might succeed Behnam as the CFTC’s new leader. A few names have been bandied about as potential candidates, including Perianne Boring, founder/CEO of The Digital Chamber (TDC) trade group; former CFTC commissioner Jill Sommers; and current CFTC commissioners Summer Mersinger and Caroline Pham.

Following Behnam’s announcement, Reuters suggested Mersinger or Pham were the likeliest candidates to be named interim chair, given they are Republican appointees. However, former Commissioner Brian Quintenz—currently head of policy at pro-crypto venture capital group a16z—is also in the running for the permanent gig, along with Josh Sterling and Neal Kumar, two other former CFTC execs with digital asset experience.

Behnam will step down the same day as Gary Gensler, the outgoing chair of the Securities and Exchange Commission (SEC). Gensler adopted a far more antagonistic approach to regulated digital assets than Behnam, earning the ire of crypto operators and Trump himself, who vowed to fire Gensler “on day one” of his new administration.

Don’t let your carriage turn back into a pumpkin

Getting back to the Winklevii for a moment, the twins donated millions to Trump’s 2024 election campaign, who will be sworn in for his second stint as president on January 20. But unlike some of their fellow contributors, the twins have yet to publicize any contributions to Trump’s inaugural committees, which are on pace to set a new record (beating Trump’s 2016 record) for funds raised to celebrate an incoming president.

Robinhood (NASDAQ: HOOD) has donated $2 million to Trump’s inaugural fund, while rival exchanges Coinbase (NASDAQ: COIN) and Kraken each ponied up $1 million. But so far the brass ring belongs to Ripple Labs CEO Brad Garlinghouse, who has pledged $5 million worth of Ripple’s XRP token (and apparently met with Trump at Mar-a-Lago on January 6—see kids, you get what you paid for).

All of the above donors will receive tickets to the swearing-in ceremony, the inaugural ball, and other off-limits soirées. But that’s not enough for the crypto sector, which is throwing its own ‘Crypto Ball’ on January 17 to celebrate both Trump’s victory and the sector’s role in enabling that victory.

The Crypto Ball, which is being held at the Andrew W. Mellon Auditorium in Washington, is described as ‘A Celebration of New Beginnings: American Innovation.’ The 800 general admission tickets are going for the low, low price of $2,500 apiece, while sponsorship opportunities run from $150,000 to $1 million.

The black-tie affair is being hosted by conference promoters BTC Inc, which hosted the Nashville confab at which Trump spoke last July. Co-hosts include Coinbase’s astroturf ‘grass roots’ group Stand With Crypto, the Exodus crypto wallet, and digital asset custodians Anchorage Digital. Sponsors include Coinbase, Galaxy, Metamask, Mysten Labs and Sui.

Trump must be a Janet Jackson fan because he really likes the word nasty and his attitude toward people who seek his favor suggests a little ‘what have you done for me, lately.’ So Winklevii, while you’ve got the checkbook out 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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