FOIAengine: Finding a Signal Amid Hundreds of Requests
Cameron Winklevoss, half of the identical-twin duo at the helm of the cryptocurrency exchange named Gemini (yes, Houston, we get it), had a big reason to celebrate last week’s news that the government dropped its securities investigation against his firm. Instead, the Gemini twin was talking about revenge. More about why, farther down. What’s important, first, is to understand the breaking news: There’s been a huge turnaround in crypto enforcement.
When the Securities and Exchange Commission on February 26 abandoned a nearly two-year investigation of Gemini (“where the world buys, sells, and stores crypto”), it was among at least eight investigations or lawsuits in the crypto space that the SEC suddenly shut down last month – the consequence of a complete retooling of the agency’s crypto enforcement program and the reassignment of many of its enforcement attorneys.
Other players who benefited from the SEC’s change of course included Binance, Coinbase, OpenSea, Robinhood, Uniswap, Consensys, and Justin Sun, the Chinese crypto entrepreneur who paid $6.5 million for a banana duct-taped to a wall, and then ate the banana after the check cleared. All those crypto notables saw their cases ended.
During previous Chairman Gary Gensler’s less than four years on the job, the SEC assessed over $6 billion in penalties against cryptocurrency players. You can view the dashboard, and its comparison with the prior Republican chair, Jay Clayton, here.
With Donald Trump in the White House, an executive order encouraging “digital financial technology,” and a new, crypto-friendly chairman awaiting confirmation, the SEC regulatory climate has quickly changed for Bitcoin, altcoins, and memecoins.
Trump has an official memecoin ($TRUMP) that, at this writing, has a market cap of $3.37 billion; the market cap for First Lady Melania Trump’s official memecoin ($MELANIA) is $496 million. Both official Trump memecoins are way down from their highs. Still, it’s real money, and at some point the lockup restrictions on Trump and his inner circle, controlling at least 80 percent of the supply, will expire and they’ll be able to sell.
In the meantime, the creators make money on the trades. According to a Reuters report, “three crypto data firms, including Merkle Science and Chainalysis, analyzed the blockchain, a publicly available ledger that shows all transactions involving $TRUMP, for Reuters. They estimated that the $TRUMP token had generated between $86 million and $100 million in trading fees by January 30. The estimates far exceed what has been previously reported.” Eric Trump, speaking on behalf of the Trump Organization, told Reuters in response to questions about the fees that he is proud of what “we continue to accomplish in crypto. $Trump is currently the hottest digital meme on earth.”
“We are just getting started,” he added.
In a March 2 story, Politico called it “a bubble looking for a pin.” “Pump and dump” is a description often used where memecoins are concerned.
There are plenty of cleverly named Trump memecoin knockoffs out there, and a lot of others. Amid the froth and hype, the SEC staff on February 27 gave a “get out of jail free” card to all of them, announcing that the staff didn’t consider memecoins to be securities, in effect signaling a new hands-off approach. “A memecoin does not constitute any of the common financial instruments specifically enumerated in the definition of ‘security’ because, among other things, it does not generate a yield or convey rights to future income, profits, or assets of a business,” the Corporation Finance staff said in its announcement. “In other words, a memecoin is not itself a security.” What, then, is it? The staff answered that question: “Memecoins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, memecoins are akin to collectibles.”
The SEC’s crypto shuffle happened quickly. The day after Trump’s inauguration, Acting Chairman Mark Uyeda put Republican Commissioner Hester Peirce in charge of a task force to rewrite the rules. Two weeks later, Peirce issued a kind of manifesto, titled “The Journey Begins,” that presaged the 180-degree turnaround in the agency’s stance on crypto. She wrote: “The crypto road trip on which the newly announced Crypto Task Force has embarked likewise should be more enjoyable and less risky than the crypto road trip the Commission has taken the industry on for the last decade.”
Enjoyable. Less risky. There could be no doubt what was coming.
Other pieces quickly fell into place: first, the abandoned crypto cases; then, a cutback of the SEC’s crypto fraud team; and, finally, the staff’s declaration that memecoins are like baseball cards and other collectibles.
The agency’s Crypto Assets and Cyber Unit, which was nearly doubled in size a few years ago with a mission to “police wrongdoing,” was renamed the Cyber and Emerging Technologies Unit and its staff was cut by 40 percent. The unit will still be on the lookout for fraud, said Uyeda, but it will also “facilitate capital formation and market efficiency by clearing the way for innovation to grow.”
Left unclear is whether and how the SEC will unwind still-pending civil actions from the Gensler era, including one against Winklevoss’ company, Gemini.
Winklevoss, who proudly announced a $1 million Bitcoin donation to Trump last June, could have taken a victory lap after the SEC dropped its investigation and sent all the right signals about crypto’s bright future. Instead, he posted a vitriolic statement on X that tasted of frustration and retribution, and which quickly had a million views:
“The SEC cost us tens of millions of dollars in legal bills alone and hundreds of millions in lost productivity, creativity, and innovation. Of course, Gemini is not alone. The SEC’s behavior in aggregate towards other crypto companies and projects cost orders of magnitude more and caused unquantifiable loss in economic growth for America.”
Winklevoss suggested the SEC should repay his company three times what it spent defending the investigation – which, according to Winklevoss, went on for 699 days. “Even better,” he said, the SEC should have paid Gemini’s legal fees up front.
There was much more. In a section titled “Dishonorable Discharge,” Winklevoss said, “Everyone involved in these actions should be fired immediately and in a public way. Their names, roles, and the actions they participated in should be posted on the SEC website. How many SEC enforcement lawyers have resigned in protest since the SEC top brass instructed them to withdraw crypto cases and close investigations? Zero. Which means they never believed in these cases to begin with. . . . We will not rebuild trust and integrity in federal agencies unless there are serious consequences for bad faith actors.”
All this sent us to FOIAengine, which tracks FOIA requests in as close to real-time as their availability allows, to seek clues about Gemini and see who else might have a stake in the fight or what might be coming next. FOIA requests can be early warning of bad publicity, litigation to come, or uncertainties to be hedged and gamed out. We found 293 recent FOIA requests about crypto to the SEC and other agencies. The requests run the gamut; see them all here.
Among the numerous FOIA requests about Gemini and the Winklevae (as they were famously called in The Social Network), one FOIA request stood out as a potential early signal about Gemini’s legal troubles to come. It might explain a lot. That lone FOIA request presaged a case filed against Gemini by the SEC which, at this writing, is still ongoing in the Southern District of New York.
On August 22, 2022, an unidentified requester sought “loan terms between Winklevoss Capital and other firms related to trading on the Gemini exchange and trading in the Gemini Bitcoin Auction.”
Bitcoin was wobbly at the time of that FOIA request. Its price had dipped 41 percent, to $18,700, in June of that year, and there would be the crypto equivalent of a bank run a few months later, when FTX collapsed. Gemini, meanwhile, was offering an interest-bearing program called “Gemini Earn.” It worked like this: Gemini customers, including retail investors in the United States, “loaned” their crypto assets to a second company, Genesis Global Capital, in exchange for Genesis’ promise to pay them interest (with Gemini taking a cut). Genesis then redeployed the capital as it saw fit, hoping to profit beyond the interest it was paying out. According to the SEC, Gemini “raised billions of dollars’ worth of crypto assets” this way, “from hundreds of thousands of investors.” But when FTX went belly up and the market fell hard, Genesis went bankrupt, and Gemini’s customers couldn’t withdraw their crypto assets. The SEC sued both companies, and warned that “investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing” – an indication that Cameron and Tyler Winklevoss might be facing more trouble. (Gemini stopped offering Gemini Earn right before the SEC sued, and repaid its customers several years later as Bitcoin prices recovered.)
The FOIA request preceding the investigation and lawsuit was made to the Commodity Futures Trading Commission, which follows a stricter disclosure policy than the SEC when it comes to identifying requesters. In this case, the requester wasn’t identified. But the question about Gemini’s “loan terms” was, in itself, significant because of the timing: three months before the crypto market crashed, and five months before the SEC filed the civil lawsuit in the Southern District of New York against Gemini and Genesis over their Gemini Earn crypto asset lending program.
Genesis settled the civil litigation last year, agreeing to a $21 million penalty. At the time, Gensler used the settlement to admonish the industry: “Today’s settlement builds on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”
Based on the status of the SEC’s still-pending case against Gemini, it seems that word of the new stance on crypto hasn’t reached Foley Square – although sources close to the matter indicate the two sides are talking about a pause in the litigation, or outright dismissal. Hope for an end to the ongoing litigation may be what Winklevoss’ rant is really all about. In the meantime, the court docket shows that Gemini is fighting on. The most recent docket entry (February 3) shows the case still headed to a jury trial later this year.
We reached out to both sides to see if that might happen. An SEC spokesperson declined comment, as did Gemini’s high-powered lead defense counsel, Jack Baughman. But last Friday, two days after his client Winklevoss’ tirade, Baughman posted a long comment on X that expressed frustration: “The crypto enforcement debacle occurred because, for whatever reason, Gary Gensler decided to go after the industry on the theory that digital assets were securities. It remains unknown why he decided this was the thing to do, but for current purposes the fact is that he had the ability to do that and deploy vast federal resources in pursuit of his pet project. We need a serious public debate about the amount of discretion agencies like the SEC and CFTC should have. It’s not an easy question and you can’t make a rule just based on how much you hate what Gensler did. . . . Pretty soon there will be a new wave of enforcement activity directed at another new technology. My money is on AI. But whatever it is, we would all benefit from a serious reset of the way regulatory enforcement is done in this country.”
FOIAengine access now is available for all professional members of Investigative Reporters and Editors, a non-profit organization dedicated to improving the quality of journalism. IRE is the world’s oldest and largest association of investigative journalists. Following the federal government’s shutdown of FOIAonline.gov last year, FOIAengine is the only source for the most comprehensive, fully searchable archive of FOIA requests across dozens of federal departments and agencies. FOIAengine has more robust functionality and searching capabilities, and standardizes data from different agencies to make it easier to work with. PoliScio Analytics is proud to be partnering with IRE to provide this valuable content to investigative reporters worldwide.
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Update: Just-posted February FOIA requests include 25 to FDA from Point72, many relating to Carvykti.
Next: Will SEC administrative law judges soon be fired?
John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere. He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis. His most recent book is The Partisan: The Life of William Rehnquist. Jenkins founded Law Street Media in 2013. Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly. FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller. Learn more about FOIAengine here. To review FOIA requests mentioned in this article, subscribe to FOIAengine.
Write to John A. Jenkins at JAJ@PoliScio.com.
