The CFTC fined a crypto company for falsely claiming that its coins were backed by U.S. dollars ("USD") and a second crypto company for executing illegal, off-exchange retail transactions in digital assets commodities. The fines totaled $42.5 million.

In one Order, the CFTC found that the company Tether falsely claimed that it held in reserves enough fiat to back each and every one of its USD "tether" tokens in circulation at all times. The CFTC stated that the company failed to disclose that it maintained reserves, which in part included unsecured receivables and non-fiat assets, in accounts other than company bank accounts. In addition, the CFTC noted that the company failed to (i) track the real-time status of the reserves as a result of its use of a manual process and (ii) regularly audit the reserves.

As a result of its findings, the CFTC determined that the company violated CEA Section 6(c)(1) ("Prohibition against manipulation") and CFTC Rule 180.1(a)(2) ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices"). To settle the charges, the company agreed to (i) cease and desist from future violations and (ii) a $41 million civil monetary penalty.

In the second Order, the CFTC found that the company Bitfinex offered, executed and confirmed for execution digital assets transactions involving non-eligible commercial entities and retail customers. The CFTC also determined that the company accepted orders and payments for retail commodity transactions without registering as a futures commission merchant ("FCM").

As a result, the CFTC determined that the company violated CEA Sections 4(a) ("Restriction on futures trading") and 4d(a)(1) ("Futures commission merchant registration requirements; duties of merchants in handling customer receipts"). The company had previously settled violations of the same CEA provisions in 2016. The CFTC found that the company violated its 2016 Order. To settle the charges, the company agreed to (i) cease and desist from future violations, (ii) a $1.5 million civil monetary penalty and (iii) compliance undertakings.

In a statement, CFTC Commissioner Dawn DeBerry Stump concurred with the CFTC's findings against the crypto companies. However, Ms. Stump expressed concern that the CFTC's application of the CEA's definition of "commodity" to stablecoins gives the impression that stablecoins are within the scope of the CFTC's regulatory authority. Ms. Stump clarified that the definition of "commodity" is "relied upon in applying the anti-fraud provisions in CEA Section 6(c)," and that the CFTC does "not regulate stablecoins" and does not "have daily insight into the businesses of those who issue such." Ms. Stump noted SEC Commissioner Hester M. Peirce's recent question as to whether regulators are "fighting for investors or . . . fighting for jurisdiction" in the digital asset space. Ms. Stump reiterated that if the CFTC is to hold exchanges accountable for acting as FCMs, then it should clarify the legal requirements applicable to an exchange that seeks to register as an FCM and how the CFTC will apply the CEA's requirements to such entities.


Participants in digital assets markets may view these enforcement actions as evidencing governmental hostility to digital assets, but they are better viewed as routine enforcement actions against persons acting clearly in violation of U.S. law.  As to Tether, notwithstanding its self-description as an issuer of "stablecoin," the company effectively operated as an investment company that was likely subject to SEC registration under the Investment Company Act. Of course, it would not have been able to comply with the regulatory requirements for numerous reasons, not least of which were various conflicts of interest. Likewise, Bitfinex was clearly engaged in trading in derivatives on digital assets in violation of U.S. law.

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Commissioner Stump's public statement is notable for two reasons.

First, she raises the important issue of regulatory authority in referring to the CFTC's application of the CEA's definition of "commodity" to stablecoins. Previously, Commissioner Stump addressed this issue  in a publication attempting to clarify the scope of the CFTC's regulatory authority and enforcement authority (see in particular points 3-4 and 7-9). 

Second, these enforcement actions mark the second time that Commissioner Stump made public remarks emphasizing the uncertainty around the CFTC's application of FCM rules to an exchange on which retail commodity transactions are traded. In a previous CFTC enforcement action, Commissioner Stump described as "uncharted territory" such application of the Commodity Exchange Act's FCM rules in the context of retail commodity transactions. The CFTC should clear up the uncertainty on this issue.

Cadwalader's Steven Lofchie contributed to this comment.

Primary Sources

  1.  CFTC Order: Tether Holdings Limited, et al
  2.  CFTC Order: BFXNA Inc., et al
  3. CFTC Press Release: CFTC Orders Tether and Bitfinex to Pay Fines Totaling $42.5 Million
  4. CFTC Statement, Dawn D. Stump: Concurring Statement by Commissioner Dawn D. Stump Regarding Tether and Bitfinex Settlement

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