- Federal Court holds CFTC has authority to take action against My Big Coin, a cryptocurrency that was alleged offered subject to fraudulent claims.
- The court’s decision is consistent with another holding and CFTC’s stated position and should have no effect on non-fraudulent use of cryptocurrency.
Although it’s received a fair amount of press, a recent U.S. federal court decision affirmed what we already knew — the Commodities Futures Trading Commission has authority to regulate cryptocurrencies.
The ruling came in a case involving the CFTC’s enforcement action against My Big Coin Pay, the offerer of a virtual currency called My Big Coin, and a number of individual defendants.
The court held that CFTC has authority over My Big Coin because My Big Coin is a virtual currency, and the CTFC has authority over virtual currencies because some virtual currencies are traded via futures contracts. The court followed a line of cases involving natural gas that held the Commodity Exchange Act gives the CFTC authority over commodities if any of that general type of commodity is traded via futures contracts, regardless of whether the specific type of commodity at issue is traded via futures contracts.
The CFTC alleged in its complaint that “My Big Coin is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin),” wrote Senior Judge Rya W. Zopel of the District of Massachusetts. “That is sufficient … to allege that that My Big Coin is a ‘commodity’ under the (Commodity Exchange) Act.”
A copy of the opinion is available here:
The decision is consistent with the ruling in a case earlier this year, CFTC v. McDonnell, in which New York federal court entered final judgment ordering the defendants to pay over $1.1 million in civil monetary penalties and restitution in connection with a lawsuit brought by the CFTC alleging fraud in connection with virtual currencies, including Bitcoin and Litecoin.
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 virtual currencies. We will continue to police these markets in close coordination with our sister agencies.James McDonald, CFTC Director of Enforcement
The opinion, though, is fairly unremarkable. It supports a position that the CFTC claimed four years earlier, and also is consistent with the McDonnell case.
It also won’t make much of a difference to users and investors of cryptocurrencies, except to the extent that it means the CFTC has authority to take action against fraud and market manipulation involving cryptocurrency.
“When it comes to fraud and manipulation, we need to be strong. When it comes to policy making, I think we need to be slow and deliberate and well informed,” CFTC Chairman J. Christopher Giancarlo told CNBC in September.