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Financial Services Law Insights and Observations

CFTC files charges against operators of unregistered digital asset exchange

Securities CFTC Courts Enforcement Digital Assets Cryptocurrency Commodity Exchange Act Anti-Money Laundering


On October 3, the CFTC filed a complaint against an individual and the four companies he controlled (collectively, “defendants”) in the U.S. District Court for the Southern District of Florida for allegedly operating a digital asset exchange that offered futures transactions on a platform other than a designated contract market. The defendants are also charged with attempting to manipulate the price of the exchange’s native token. According to the CFTC, the defendants used web-based solicitation to obtain customers even though the individual defendant was aware that such participation subjected the exchange to U.S. regulation. The CFTC also claimed that, in addition to allegedly violating certain registration and regulatory requirements, the defendants attempted to artificially inflate the price of the exchange’s “native currency.” Among other things, the defendants are also accused of failing to implement an effective AML program, know-your-customer procedures, or a customer information program to verify the identifies of the customers who purchased the digital assets. The complaint charges the defendants with violations of the Commodity Exchange Act (CEA), and seeks full restitution, disgorgement of ill-gotten gain, civil penalties, permanent trading and registration bans, and a permanent injunction against further CEA violations.