CFTC Tells Judge It Has Jurisdiction Over Cryptocurrencies
A few days before issuing the recent advisory for the cryptocurrency market, the Commodity Futures Trading Commission told the judge in the case against My Big Coin Pay Inc. that cryptocurrencies are commodities, and are therefore within CFTC jurisdiction.
The federal judge in Massachusetts is hearing the case against My Big Coin Pay Inc., a cryptocurrency company that allegedly defrauded dozens of investors out of at least $6 million.
Unsealed earlier this year, a CFTC lawsuit against the issuer of the virtual currency known as My Big Coin Pay first shed light on the company´s questionable practices.
The defendants argued that cryptocurrencies should not be open to CFTC scrutiny because they are not commodities. The CFTC counter-argued that, “Moving defendants’ interpretation would lead to absurd results,” and that the statute, “cannot be read to allow a defendant who is in the virtual currency business to lie, cheat and steal when it comes to virtual currencies similar to bitcoin, which do not underlie futures contracts, but not when it comes to a virtual currency underlying a futures contract, like bitcoin.”
According to the allegations in the case the Nevada-based company, its founder and one of its salesmen conspired to defraud about 28 investors out of six million dollars between 2014 and 2017.
The two defendants allegedly used proceeds from the scheme to fund a lavish lifestyle, including high-end shopping escapades to Las Vegas, and to pay personal debts.
Based on advertisements for My Big Coin, Investors were led to believe that the virtual currency was backed by gold and as widely accepted as major credit cards. Both statements have been found to be false.
While the company´s founder asked the judge to declare the suit meritless, the CFTC reaffirmed its argument that cryptocurrencies are commodities and are thus under its jurisdiction, because a commodity needs not be “tangible” to be regulated as such.
The CFTC specifically argued that virtual currencies such as My Big Coin fall into a category contemplated in the Commodity Futures Trading Commission Act of 1974, namely, “all other goods and articles.”
While the first attempt by the CFTC to hold a company accountable for cryptocurrency fraud failed last year, the current scenario seems more propitious for the regulator to succeed.
Are you or your company a target of CFTC regulatory action? HerskovitsPLLC New York securities lawyers with a national practice helps financial industry participants avoid or defend against CFTC enforcement actions. 212.897.5410 or Connect online