The U.S. District Court for the District of Columbia entered a Consent Order ("Order") against a foreign trading platform and its CEO (collectively, the "Defendants") for unlawful bitcoin-related transactions with U.S. customers. The Order resulted from a September 2018 Complaint filed by the CFTC.
According to the Order, the Defendants (i) illegally offered commodity transactions that were in the form of "contracts for difference" involving gold and crude oil, (ii) neglected to register as a futures commission merchant with the CFTC and (iii) failed to satisfy their supervisory responsibilities relating to anti-money laundering. The transactions, which were financed and settled in bitcoin, never resulted in the delivery of the underlying commodities.
The Order, among other things, imposes a civil monetary penalty of $175,000 and requires the disgorgement of $246,000 of gains. Additionally, the Order requires that the Defendants certify to the CFTC that they have liquidated all U.S. customer accounts and have repaid to U.S. customers roughly 93 bitcoins valued at approximately $570,000.
Commentary / Bob Zwirb
The prohibition against retail commodity transactions, CEA Section 2(c)(2)(D)(ii)(III), is primarily meant to address the illegal sale of off-exchange futures to retail investors. Here, the underlying product is not a futures contract but, rather, a "contract for difference," more commonly referred to, at least in the United States, as swaps. See 77 FR 48207, 48259-60, 48308 (Aug. 13, 2012). As a legal matter, it is not clear why the CFTC determined to charge under the CFTC's retail commodity provision, since the CEA clearly makes it illegal to sell swaps to retail investors and that might have been a more straightforward case. It would be interesting to know whether the CFTC's charging decision was simply (i) six of one or half dozen of another, or (ii) there was any further long-term legal strategy to the charge.
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