TronWeekly

Crypto World News

You are here: Home / Archives for CFTC

CFTC

Crypto forecast platform Polymarket to pay a penalty of $1.4M

by

Crypto betting platform Polymarket was directed by the Commodity Futures Trading Commission or CFTC to pay a fine of $1.4 million on 3rd January 2022 for its failure to obtain designated contract market [DCM] or registration as a swap execution facility [SEF]. In accordance with the press release, this is mandatory to offer off-exchange event-based binary options contracts and provide users with full refunds as the firm failed to meet the requirements with the regulator.

In addition to the fine, the order also requires the New York-based firm [the operating name for Blockratize, Inc.] to wind down all of its markets that do not comply with the Commodity Exchange Act 9 [CEA] and applicable CFTC regulations, and cease and desist from violating the CEA and CFTC regulations, as charged. Reading along the same line, acting Director of Enforcement Vincent McGonagle stated,

“All derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space. Market participants should proactively engage with the CFTC to ensure that our markets remain robust, transparent, and afford customers the protection provided under the CEA and our regulations.”

Polymarket- Background overview

The CFTC discovered on June 2020, that Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts, known as “event markets.” As per the order, through its website, the crypto market platform offered public trading on binary options contracts related to events like “Will Trump win the 2020 presidential election?”. Apart from that, the order also finds that Polymarket has offered more than 900 separate event markets since 2018 while deploying smart contracts hosted on a blockchain to operate the markets.  

The order also noted that such event market contracts, each of which is composed of a pair of binary options, constitute swaps under the CFTC’s jurisdiction, and therefore can only be offered on a registered exchange in accordance with the CEA and CFTC regulations. As stated in the order, the CFTC recognizes Polymarket’s substantial cooperation with the Division of Enforcement’s investigation of this matter in the form of a reduced civil monetary penalty.

New York-based crypto options firms are in trouble for failing to register with the CFTC

by

An array of New York-based crypto options platforms were under fire after they failed to register with the Commodity Futures Trading Commission [CFTC]. The CFTC in its recent press release revealed the names and the reason behind pressing charges against the firms.

Regulatory entities have been exerting their power now more than ever. The emergence of the crypto market had certainly proved to be distressing for many. The nature of the crypto industry and the regulated sector of it has posed a problem to a wide range of people. The demand for crypto has noticed drastic growth and in order to safeguard the society against any possible loss/scam/fraud regulators were seen urging crypto platforms to register and garner a proper license. This, however, was overlooked by many.

Therefore, taking things into its own hand, the CFTC decided to charge over 14 New York i platforms in total for not registering. About 12 platforms out of the 14 were said to be delivering crypto-related services.

New York-based crypto platforms under fire

The crypto platforms that were charged by the CFTC included, Bitfxprofit, Star FX Pro, Smarter Signals, Tradingforexpay, Cryptofxtrader, and BinanceFx Trade. The last one on the list wasn’t related to Changpeng Zhao’s crypto exchange, Binance in any way. In its latest press release, the CFTC noted that none of the aforementioned New York-based platforms had registered as futures commission merchants [FCMs].

The Division of Enforcement Acting Director, Vincent McGonagle addressed the latest incident and said,

“Today’s actions reflect the CFTC’s dedicated efforts to aggressively root out bad actors falsely claiming to hold legitimate registrations and protect the trading public.”

The CFTC noted that it was important and mandatory for every firm that delivered services related to futures, swaps, contracts, and options to register with the financial watchdog as an FCM. However, platforms whose services are limited to spot markets do not have to undergo this registration.

Additionally, the regulator went on to urge the public to stay alert and invest in firms that have registered with the CFTC. An individual can verify a company’s registration status through NFA BASIC.

BlockFi replaces Christopher Giancarlo aka “Crypto Dad” from its Board

by

Prominent financial services company, BlockFi has replaced Christopher Giancarlo, the former Commodity Futures Trading Commission [CFTC] chair. Giancarlo, who was popularly known as “Crypto Dad,” is being succeeded by Ellen-Blair Chube who joined BlockFi’s Board of Directors.

Following the development, the exec was quoted saying,

“I was immediately struck by the caliber of leadership and strength of retail and institutional product offering at BlockFi. So many of the crypto-firsts have been pioneered by this organization, and I am excited to count myself as part of the Board that will support BlockFi’s mission of financial inclusion, continued innovation and the next tranche of industry firsts that are to come.”

Giancarlo’s unexpected exit from BlockFi

The official announcement did not mention the reason behind Giancarlo departure after being in the position for only four months. However, the company revealed that the former commissioner will continue to offer strategic counsel to the company in an advisory role. Chube, on the other hand, is a Managing Director and Client Service Officer at the global financial services firm, William Blair. According to reports she has nearly two decades of expertise in strategic leadership across government and the private sector for the benefit of clients on the buy and sell-side.

Giancarlo had previously served as previously worked for five years as the chair of the independent federal agency that regulates commodity futures and options markets in the US. He earned his nickname as “Crypto Dad” for his early embrace of cryptocurrency assets and overseeing the rollout of regulated Bitcoin ETF. After the stepping down, he revealed looking forward to continuing to advise the “impressive group of leaders,” and added,

“The best is yet to come for BlockFi and I know that as crypto assets take a more prominent role in both retail and institutional investors’ strategies, BlockFi will be there to lead the way.”

CZ Confirms Binance US Will Go Ahead With IPO Despite Increased Scrutiny

by

Ever since its creation, the cryptocurrency market has been the subject of routine regulatory interventions. The latest story surrounds Binance’s United States wing, Binance US, and its decision to move ahead with an IPO despite crackdowns from the financial sphere. Binance chief executive Changpeng Zhao said on Friday that the company’s move was built on the back of intense discussions and reworks.

CZ, as the CEO is more commonly called, made his comments at the virtual REDeFINE Tomorrow 20201 virtual meet on July 23. He did not shy away from answering questions about Binance’s situation with US regulators regarding alleged illegal trading activities on the platform. Binance and all of its affiliates will be ready to face any regulator in the future as well, said CZ. In his words:


“Binance US is looking at the IPO route. Most regulators are familiar with a certain pattern or having headquarters, having corporate structure. But we are setting up those structures to make it easier for an IPO to happen. We are now in the mindset of shifting from a tech startup to a financial service.”

The trading platform has come under fire earlier for not complying with frameworks set by lawmakers in the States. Even CZ admitted that the company had a need to localize compliance communications to make regulatory processes faster and more transparent. Binance US has hired former US Comptroller Brian Brooks as its CEO and to chart out new paths in terms of regulations and systematic ecosystem creation. 

The creation of an IPO would allow outside investors to enter the cryptocurrency market in a traditional manner. Regulators have insisted that they want to ensure proper measures are taken before a cryptocurrency company enters the mainstream space and pockets. The United States CFTC has also played a key role in keeping the tabs on Binance and reports about the company’s dealings with US customers. 

CFTC Commissioner is not a big fan of DeFi; calls it ‘illegal’ since it defies archaic laws

by

DeFi has gained significant traction this bull season. It has not only attracted a myriad of previously skeptic market players to rake in profits but has now come under the scrutiny of law enforcement agencies. In the latest development, the Commissioner of Commodity Futures Trading Commission [CFTC], Dan M. Berkovitz has called for a crackdown on unregulated derivatives platforms in the decentralized finance world.

CFTC exec just termed DeFi “illegal”

Berkovitz believes DeFi derivatives platforms may violate the existing Commodity Exchange Act [CEA]. In a keynote address, the commissioner was quoted saying,

“There is no intermediary to monitor markets for fraud and manipulation, prevent money laundering, safeguard deposited funds, ensure counterparty performance, or make customers whole when processes fail. A system without intermediaries is a Hobbesian marketplace with each person looking out for themselves. Caveat emptor—“let the buyer beware.”

He also opined that “unlicensed” DeFi markets for derivative instruments are a bad idea and that he does not see how it is legal under the act which requires futures contracts to be traded on a designated contract market [DCM] that are licensed and regulated by the CFTC.

Berkovitz went on to speculate that it is “untenable” to permit “an unregulated, unlicensed derivatives market” to function adjacent to, what he considers, “a fully regulated and licensed derivatives” market.

Acknowledging the lack of “safeguards’ in the market as well as customer protections, the commissioner said that it would not be fair to enforce the obligations, restrictions, and costs of regulation upon some DeFi while allowing their unregulated rivals to exist wholly free of such obligations, restrictions, and costs.

He said that DeFi should not be allowed to transform into “an unregulated shadow financial” market in a direct match with its regulated counterparts. He also urged that the CFTC along with other regulators of the country, need to concentrate more on the growing concern and address regulatory transgressions appropriately.

CFTC Charges NY-based Crypto Trader ‘Coin Signals’ With $5M Fraud

by

The U.S. Commodity Futures Trading Commission [CFTC] filed a civil enforcement action on the 26th of January against New York-based crypto trader Jeremy Spence alleging fraud for operating a Ponzi scheme involving digital assets such as Bitcoin and Ethereum.

CFTC Unveils Civil Fraud Charges

CFTC’s complaint alleged that Spence fraudulently solicited more than $5 million of investments from individuals in a cryptocurrency investment scheme. Acting Director of Enforcement Vincent McGonagle stated,

“Fraudulent schemes, like that alleged in this case, undermine the integrity and development of digital asset markets and cheat customers out of their hard-earned money. We will continue to work to protect participants in our markets from fraudulent practices and hold fraudsters accountable.”

The 24-year old cryptocurrency trader was arrested by the FBI in Rhode Island on Tuesday morning on charges of wire fraud as well as commodities fraud that have maximum sentences of up to 30 years combined.

According to prosecutors and the CFTC, Spence’s trading allegedly led to massive trading losses for his investors and his payouts of what was supposed to be the profits of the clients were, in fact, misappropriated funds of other customers.

The complaint also stated that Spence had previously reported false account balances to his investors in a bid to thwart redemptions. And in a classic Ponzi-like fashion, used money from new investors to pay back his earlier investors.

In addition, Spence allegedly engaged in numerous efforts to hide his misconduct, including misrepresenting his trading profitability and the number of assets he had under management, misappropriating customer funds, and issuing fictitious performance statements.

As per CFTC’s complaint, Spence admitted to his customers that he had been involved in ‘lies and deceit.’

Back in 2018, a Florida-based law firm called Silver Miller had filed a class-action lawsuit against Spence who was operating under the moniker ‘Coin Signals’.

Manhattan U.S. Attorney Audrey Strauss, in an official statement, alleged that Spence lured investors to his cryptocurrency investment scam by claiming returns of up to 148% which resulted in a $5 million void in his customer’s accounts. Strauss further added,

“Spence’s alleged conduct should strongly signal would-be investors to thoroughly educate themselves in the cryptocurrency ecosystem before falling prey to investment scams promising huge returns for small investments that are indeed too good to be true.”

Crypto Mom Believes US Govt Intended To Send A Message To The Crypto-Verse Via BitMEX Arrests

by

October was rather detrimental to BitMEX’s cryptocurrency exchange. The US regulators have charged and arrested the owners of BitMEX for illegally running the exchange. Apart from this, over the course of the case, the exchange even suffered acute losses. The Commissioner of the Securities and Exchange Commission, Crypto Mom, Hester Peirce, commented on the same in a recent interview.

US Law Enforcement Taking Crypto Seriously?

Hester Peirce is rightfully called the Crypto Mom following her inclination towards cryptocurrencies. The Commissioner has been vocal about her stance on crypto as well as the regulators’ less progressive attitude towards cryptocurrency. While Peirce was recently elected to serve as the Commissioner of the SEC once again, the crypto community viewed this as a great boost for the industry.

Appearing in a recent interview with Laura Shin, Peirce revealed her opinion about the latest tiff between BitMEX and the United States Commodity Futures Trading Commission [CFTC]. Peirce believes that the US government was trying to put out a message. Elaborating on the same, the Commissioner said,

“Well, I think that the message has been coming to the industry fairly loud and clear on the AML, KYC front, and I’m sure it will continue. It’s a difficult area frankly for very traditional financial firms, as well, and I think that lots of firms run into trouble there, but I think that it’s definitely sending a message to the crypto world.”

Highlighting how the case was not under the purview of the SEC, Peirce suggested that her knowledge about the case was limited to what she read on the papers.

After being accused by the CFTC as well as the Department of Justice for violating the Bank Secrecy Act, BitMEX publicly denounced all the allegations. Following these charges, the exchange incurred an immense loss as a total of $243 million in BTC was withdrawn within one hour post the announcement. However, the exchange went on to change the management as all the three owners were charged. While Samuel Reed sought a way out of jail, he was mandated to appear before court whenever summoned.

BitMEX Switches Up Leadership Following CFTC Allegations; CTO Samuel Reed Released

by

Just last week, prominent cryptocurrency exchange, BitMEX made its way under the spotlight following a series of charges from the government of the United States. After publicly denying the accusations, the exchange recently released a blog post highlighting the change in leadership at the firm.

Defendants Step Down From Their Respective Roles

The parent company of BitMEX, 100x Group with the consent of the founders, has reportedly decided to change the management of the cryptocurrency exchange. The allegation made by the Commodities Futures Trading Commission [CFTC] highlighted Ben Delo, Arthur Hayes, and Samuel Reed, the owners of the exchange as the primary accused. The Department of Justice also charged the trio for disrupting the Bank Secrecy Act.

Soon after the charges were made public, BitMEX went on to share a blog post denying the allegations. However, almost a week later, the exchange decided to switch up the leadership roles in the firm. Arthur Hayes who was previously the CEO of the platform was replaced by Vivien Khoo who was serving as the chief operating officer at the 100x Group. However, Khoo’s latest upgradation is on an interim basis.

Samuel Reed was also dethroned from his role as the CTO of the exchange. The post further revealed that Ben Delo was restrained from holding any executive positions in the 100x Group. The Chairman of the 100x Group shared his stance on the latest switch in the management. He said,

“These changes to our executive leadership mean we can focus on our core business of offering superior trading opportunities for all our clients through the BitMEX platform, whilst maintaining the highest standards of corporate governance.”

While Wong suggested that the platform’s senior leadership team was well in place to continue running the operations, the firm revealed that the senior leaders and the technology team would carry out the daily management of the platform as usual.

Furthermore, Greg Dwyer had reportedly taken a leave of absence as the Head of Business Development.

BitMEX CTO Finds His Way Out Of Jail

After being arrested for violating the Banking Secrecy Act as well as illegally running the cryptocurrency exchange, Samuel Reed was arrested with the other two owners. Reed was the first to go behind bars while the others part of the case were still being questioned. However, his $5 million appearance bond was approved by the United States District Court on 3 October 2020.  A virtual court hearing had taken place on 1 October 2020 between Reed and the Court.

Capture

With the passports of both Reed as well as his wife being seized, he would have to appear before the court if he was to be convicted. While the maximum sentence for the allegations made against the trio is up to five years, Reed would have to surrender and serve a sentence if the allegations were proven by the prosecutors.

Over 45,000 BTC Pulled from BitMEX after CFTC Charges

by

The US Commodity Futures Trading Commission [CFTC] and the acting U.S. Attorney for the Southern District of New York’s announcement charging BitMEX with facilitating unregistered trading and other illegal transactions did not make good reading.

Since then, more than 45,000 BTC have been pulled from the exchange which represents over 20% of the Bitcoin deposited on BitMEX, and nearly 1% of the total circulating BTC supply. This was noted by analysis firm Glassnode which further revealed this resulted in a major drop of 27% Bitcoin balance on BitMEX. The figures fell to 120,000 BTC.

Glassnode scaled

Notably, the largest drop happened on the 2nd of October, when 44,000 BTC were withdrawn from the exchange. This was observed to be the largest negative net flow until the date. Around 30% of those funds were transferred to crypto exchanges like Genimi and Binance in equal amounts.

It was not just the spot trading that was affected. On the derivatives front as well, Bitcoin’s open interest in perpetual futures contracts on BitMEX saw a significant decline by approximately 24%, from $590 million to $450 million. This level was last seen in May as the market was recovering from the Black Thursday crash.

GN

But could this be an omen?

The US prosecutors filing criminal charges on the four founders of BitMEX which has been a crucial player in both spot as well derivatives space is worrisome. And despite the fact that this news did not have much impact on the broader cryptocurrency market, a space that is mostly driven by FOMOs and FUDs, was indeed a sign of maturity.

The recent accusations could potentially help Bitcoin, and the rest of the cryptocurrency market by extension, to grow. According to popular Analyst Willy Woo, cases like this would help platforms “to clean up their practices”. He further expects to see “less volatility, less scam-wicking, more spot volumes, more organic moves, more institutional money.”

Bill Barhydt, Abra Co-Founder, and CEO had recently opined that the key reason as to why the US still does not have a Bitcoin ETF was because of markets such as Bitmex. He further went on to say that BitMEX is easily manipulated by large traders. He had further added,

“This episode will likely be a boon for other regulated futures exchanges that offer significant leverage. Gambling is gambling. If you work in crypto please wake up. If your firm hasn’t lawyered up then you’re working at the wrong firm. Hodlers and lawyers are the big winners here.”

BitMEX Incurs Acute Loss Despite Denying CFTC And DOJ Charges

by

Prominent cryptocurrency exchange, BitMEX recently fell under the purview of the Commodities Futures Trading Commission [CFTC] of the United States. The financial regulator reportedly charged the owners of BitMEX for illegally running the crypto derivatives platform.

BitMEX Strikes Back

BitMEX has been one of the notable exchanges in the crypto industry. However, the latest news could pose as a huge setback for the exchange. In a recent release, the CFTC alleged that BitMEX was an unregistered platform and had violated several regulations put forth by the CFTC including the embodiment of anti-money laundering procedures. Along with CFTC, the owners of BitMEX, Ben Delo, Arthur Hayes as well as Samuel Reed were also charged by the Department of Justice for violating the Bank Secrecy Act.

The announcement pointed out that the aforementioned trio was carrying out illegal leveraging services, futures, options, swaps on digital assets like Bitcoin [BTC], Ether [ETH], and other prominent cryptocurrencies since November 2014. The financial regulator further revealed that the exchange had garnered more than $1 billion worth of fees since 2014.

Soon after the CFTC charged the exchange with the case, BitMEX shared a press release to assure its users that it wasn’t in troubled waters. BitMEX went on to denounce the CFTC’s charges and suggested that the platform would continue to defend the accusations. The exchange affirmed that the latest news wouldn’t have an impact on the operations of the exchange. However, an off-cycle withdrawal would be processed at 8:00 UTC as well as 13:00 UTC on 2 October 2020.

The announcement further read,

“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”

BitMEX Faces Acute Losses

Despite its attempts to eliminate commotion in the crypto community, BitMEX failed to retain its users. Several online analytics platforms highlighted how the exchange was subject to huge losses since the CFTC and DOJ charges. Glassnode Studio reported that a total of 40,000 BTC was withdrawn from the exchange. The platform shared the same on Twitter,

While Bitcoin has been trading for $10,532.50, the aforementioned number of Bitcoins withdrawn from the exchange amounted up to a whopping $420 million. BitMEX went on to break several other records in terms of outflows. Glassnode also highlighted that a total of $243 million in BTC was withdrawn within a course of just one hour, making it the largest to date.

Additionally, the XBTUSD open interest had also taken a hit on the exchange. Prominent data analytics platform, Skew pointed out that the open interest was down by 20% since the news of the charges surfaced the internet.

EjULsxCWAAEUkUJ scaled

CFTC’s latest allegations have already begun taking a toll on the cryptocurrency exchange. The prolongation of this withdrawal spree could further cause a tremendous loss for BitMEX.