A federal court has confirmed that the CFTC has authority to regulate Bitcoin and other cryptocurrencies as commodities.
“Until Congress clarifies the matter, the CFTC has concurrent authority, along with other state and federal administrative agencies, and civil and criminal courts, over dealings in virtual currency,” a judge for the U.S. District Court for the Eastern District of New York said in a preliminary injunction order issued late March 6.
Senior District Judge Jack B. Weinstein’s decision allows the Commodity Futures Trading Commission to proceed with a fraud enforcement case against CabbageTech Corp., doing business as Coin Drop Markets, and its CEO, Patrick McDonnell.
The CFTC is seeking injunctive relief and monetary penalties against Coin Drop Markets and McDonnell for allegedly misappropriating investor money through a cryptocurrency trading scam, according to the complaint.
“This is not a decision where the result is surprising,” Jai Massari, a partner at Davis Polk & Wardwell LLP’s Washington office whose practice focuses on trading and markets, told Bloomberg Law.
“I think there’s a strong desire as a policy matter to find that somebody has authority” over cryptocurrency markets, former Securities and Exchange Commissioner Annette Nazareth told Bloomberg Law. Nazareth now heads Davis Polk & Wardwell’s Washington office and leads its trading and markets practice, said.
The CFTC has regarded cryptocurrencies as commodities since 2015, when Chairman Timothy G. Massad, a Democrat, led the commission. Current CFTC Chairman J. Christopher Giancarlo, a Republican, has continued to pursue commodities enforcement actions against cryptocurrency firms.
The CFTC has limited authority to regulate spot markets, where commodities are traded for immediate rather than future delivery. The commission can, however, undertake anti-fraud and anti-manipulation enforcement actions, Giancarlo told the Senate Banking Committee Feb. 6.
The CFTC has an internal cryptocurrency enforcement task force that works closely with the Securities and Exchange Commission, Giancarlo told the committee. The McDonnell case is one of several the CFTC is pursuing involving alleged cryptocurrency fraud.
SEC Chairman Jay Clayton has previously said that many cryptocurrencies function like securities, and should be regulated as such. Weinstein’s opinion acknowledged cryptocurrencies share characteristics with both commodities and securities, but only ruled on commodities.
Many cryptocurrency firms might not have been paying much attention to regulators, Massari said. This case is evidence regulators “are really watching this area carefully, and there are regulations that apply,” she added.
McDonnell declined to comment while the case is ongoing. He is representing himself in court.
The case is CFTC v. McDonnell , E.D.N.Y., 18-CV-361, preliminary injunction order released 3/6/18 .
To contact the editor responsible for this story: Michael Ferullo at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)