Federal Judge approves CFTC regulating cryptocurrencies
CFTC announced in a press release today that the U.S. District Court of Massachusetts held the CFTC has jurisdiction to enforce Cryptocurrency fraud and regulate them as commodities. My Big Coin and its associated persons are defendants alleged to have operated a fraudulent scheme using My Big Coin to raise $6 million if investor money and later misappropriated on their personal luxury expenses. Senior Judge Rya W. Zobel upheld the CFTC’s argument that this crypotcurrency fell under the commodity definition. Early in 2018 federal courts started siding with the CFTC regulating cryptocurrencies as commodities during the Patrick McDonnell, CabbageTech, Corp. d/b/a Coin Drop Markets case.
In 2014, the CFTC declared cryptocurrencies are commodities and subject to oversight under its authority under the Commodity Exchange Act (CEA). The commission has prosecuted cryptocurrencies as commodities since it’s first enforcement action against a virtual currency case in 2015. After the hype of ICOs in 2017 the CFTC released a backgrounder on its jurisdiction over cryptocurrencies and how it intends to regulate them.
In today’s press release, James McDonald, CFTC Director of Enforcement, stated that, “This is an important ruling that confirms the authority of the CFTC to investigate and combat fraud in the virtual currency markets. This ruling, like the one in McDonnell from Judge Weinstein in the Eastern District of New York, recognizes the broad definition of commodity under the CEA, and also that the CFTC has the power to prosecute fraud with respect to commodities including Cryptocurrencies. We will continue to police these markets in close coordination with our sister agencies.”
The results of this federal court follow the precedent set forth by CFTC v. McDonnell in New York. Summary published by the press release confirms,
Agreeing with the CFTC’s arguments, the Court held that the CFTC had sufficiently alleged that the particular virtual currency at issue, My Big Coin (MBC), was a commodity under the Commodity Exchange Act (CEA) because the CFTC alleged that MBC “is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin).” According to the Court, the term “commodity” “includes a host of specifically enumerated agricultural products as well as ‘all other goods and articles . . . and all services rights and interests . . . in which contracts for future delivery are presently or in the future dealt in.” The Court specifically agreed with the CFTC that “Congress’ approach to defining ‘commodity’ signals an intent that courts focus on categories—not specific items.” The Court found that ‘[t]his broad approach also accords with Congress’s goal of ‘strengthening the federal regulation of the . . . commodity futures trading industry,’ . . . since an expansive definition of ‘commodity’ reasonably assures that the CEA’s regulatory scheme and enforcement provisions will comprehensively protect and police the markets.”
The Court also rejected Defendant’s argument that the CFTC’s anti-fraud authority over MBC extended only to fraudulent market manipulation, holding that the “broad language in the statute” “explicitly prohibit[s] fraud even in the absence of market manipulation.”
This order charges defendants Randall Crater; Mark Gillespie; John Roche; Michael Kruger; My Big Coin Pay, Inc.; and My Big Coin, Inc.; and relief defendants Kimberly Renee Benge; Kimberly Renee Benge d/b/a Greyshore Advertisement a/k/a Greyshore Advertiset; Barbara Crater Meeks; Erica Crater; Greyshore, LLC; and Greyshore Technology, LLC with commodity fraud and misappropriation related to the solicitation of customers for the virtual currency MBC.
The complete order can be found here.