CFTC case against Digitex futures exchange and CEO results in $16M court order

July 12, 2023 Coin Telegraph

CFTC

The commission filed charges against Digitex and CEO Adam Todd in September 2022 for alleged price manipulation and failure to register.

A United States federal court has ordered Digitex CEO Adam Todd to pay roughly $16 million in disgorgement and penalties related to a Commodity Futures Trading Commission (CFTC) case.

In a June 12 announcement, the CFTC said a judge in the U.S. District Court for the Southern District of Florida issued a default judgment against Todd and Digitex LLC, Digitex Limited, Digitex Software Limited and Blockster Holdings Limited Corporation for failure to register with the CFTC and manipulating the price of the DGTX token. As part of the judgment, the CEO and four companies under his control are banned from “trading in any CFTC-regulated markets” and required to pay $3,912,220 in disgorgement as well as a $11,736,660 civil monetary penalty.

“Regardless of the technology used, the CFTC will aggressively use its well-established authority to ensure entities are lawfully registered and to address the manipulation of commodities in interstate commerce,” said CFTC enforcement director Ian McGinley.

Federal Court Orders Digital Asset Derivatives Platform and Florida Resident to Pay More than $15 Million for Multiple Violations of the Commodity Exchange Act. Learn more: https://t.co/AprX50QcGf
— CFTC (@CFTC) July 12, 2023

According to McGinley, Todd allegedly pumped the price of DGTX using a computerized bot, which in 2020 he deployed on third-party exchanges to buy more of the token than it sold. The commission filed charges against Todd and Digitex in September 2022. The $16 million order or additional financial penalties may not necessarily result in repayment to Digitex users.

Along with the U.S. Securities and Exchange Commission, the CFTC is currently involved in several civil suits with crypto firms and their executives over failure to comply with regulatory guidelines. These cases include allegations against crypto exchange Binance and civil charges for former FTX CEO Sam Bankman-Fried.

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CFTC issues $54M default judgment against trader in crypto fraud scheme

June 28, 2023 Coin Telegraph

CFTC

As a result of the judgment, the defendant is also now prohibited from engaging in any trading activities within markets regulated by the CFTC and is barred from registering with the regulatory body.

On June 28th, the Commodity Futures Trading Commission (CFTC) announced that Judge Naomi Reice Buchwald of the U.S. District Court for the Southern District of New York had issued a default judgment that granted a permanent injunction against Michael Ackerman, a resident of Alliance, Ohio.

Today a federal court ordered an Ohio man to pay more than $50M for a fraudulent digital asset trading scheme. Learn more: https://t.co/z0WOqXIqih
— CFTC (@CFTC) June 28, 2023

Ackerman is now subjected to a ban from participating in any trading activities within CFTC-regulated markets and is prohibited from registering with the CFTC. Alongside these restrictions, the judgment mandates Ackerman to provide $27 million in restitution to the victims who suffered from his fraudulent digital asset trading scheme. Additionally, Ackerman is compelled to pay a $27 million civil monetary penalty, serving as a substantial financial consequence for his involvement in the deceptive scheme.

Ackerman is accused of operating a fraudulent scheme that solicited funds from individuals and entities under false pretenses. However, instead of using the funds for their intended purpose, he is alleged to have misappropriated the majority of the funds for personal use or to perpetuate the fraudulent trading scheme.

The case, brought forward by the CFTC, traces back to February 11, 2020, when Ackerman was accused of orchestrating an elaborate scam that spanned from August 2017 to December 2019. The complaint alleged that Ackerman operated the scheme to solicit funds for trading digital commodity assets but instead misappropriated the funds.

Over 150 individuals and entities reportedly entrusted Ackerman with a total of at least $33 million. Shockingly, less than $10 million of the deposited funds were actually used for trading, while the remainder was fraudulently diverted for personal use or to prolong the deceptive operation.

During a keynote speech at City Week 2023 in London, Christy Goldsmith Romero, a commissioner of the CFTC, proposed the reduction of cryptocurrency anonymity as a way to mitigate the risks associated with digital assets. Romero highlighted the importance of governments and the industry working together to address the appeal of cryptocurrencies for illicit finance.

She emphasized that managing the risks of digital assets is crucial to uphold market integrity, national security, and financial stability. Romero specifically mentioned the need to tackle the challenge of identity verification to minimize illicit finance risks in the cryptocurrency market, as the use of mixers and anonymity-enhancing technology introduces significant potential risks.

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Fed sees stablecoin as form of money, wants ‘robust’ role in its oversight, Powell says

June 21, 2023 Coin Telegraph

CFTC

The Federal Reserve chair gave his opinion on draft crypto legislation at the House Financial Services Committee’s semi-annual Fed policy hearing.

The United States Federal Reserve Board sees payment stablecoins as a form of money, Chair Jerome Powell said during questioning at the House of Representatives Financial Services Committee’s semi-annual hearing on Fed policy on June 21.

Powell’s comments came in response to committee ranking member Maxine Waters, who asked for his reaction to the proposed stablecoin bill, which originated with the Republicans and would be the first crypto legislation in the U.S. if passed.

Waters told Powell that the bill would create “58 different licenses with federal regulatory approval over only two of the licenses.” The remaining licenses would be issued by states, territories and other jurisdictions, which “takes state preemption to a whole new level,” she said. Powell responded:

“We do see payment stablecoins as a form of money, […] and we believe that it would be appropriate to have quite a robust federal role in what happens in stablecoin going forward.”

“Allowing a lot of private money creation at the state level would be a mistake,” he added.

By providing commentary on the draft bill, Powell took a position that runs contrary to that of Securities and Exchange Commission (SEC) Chair Gary Gensler. Gensler spoke at a Senate Banking Committee hearing last year and said that stablecoins may require registration and regulation and has repeatedly stated that all cryptocurrencies except Bitcoin (BTC) are securities.

Powell’s position does not conform any better to Commodity Futures Trading Commission (CFTC) chair Rostin Behnam’s claim that stablecoins will be determined to be a commodity. There is no easily accessible Fed definition of money, but it is commonly considered a means of exchange. Commodities are defined under U.S. law as “goods and articles […] and all services, rights, and interests […] in which contracts for future delivery are presently or in the future dealt in.” The definition of a security is much more intricate.

#TODAY @ 10 AM - Ranking Member @RepMaxineWaters leads Democrats as the full Cmte holds a hearing entitled “The @federalreserve’s Semi-Annual Monetary Policy Report.”

: https://t.co/eLea11sV1m
: https://t.co/0bTBgQgsZ0
— U.S. House Committee on Financial Services (@FSCDems) June 21, 2023

Also on June 21, former CFTC Chair Chris Giancarlo weighed in on the bill in an editorial in The Hill. All licensing authorities would have “the discretion to coerce stablecoin protocols to deny services to lawful but politically disfavored businesses,” he said. He called that fact a “glaring omission” that could enable a government policy similar to the Obama administration’s Operation Choke Point. Giancarlo said:

“The simple fix to this problem is to provide that government licensing authorities have no discretion to pick and choose among otherwise lawful activities and condition licensure on the stablecoin’s denial of legal transactions."

Otherwise, “stablecoin transactions will be frighteningly beholden to the shifting political winds of Washington," Giancarlo said.

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The US will find the ‘right outcome’ for crypto, eventually – Coinbase CEO

June 11, 2023 Coin Telegraph

CFTC

During an interview with WSJ, Coinbase CEO Brian Armstrong explained that entrepreneurs who departed from the United States will return when the government finds the "right outcome" for crypto regulation.

Brian Armstrong, the CEO of cryptocurrency exchange Coinbase, is confident that the United States will achieve clarity with crypto regulations, “even if it takes a while.” However, he believes this is the vital component to luring entrepreneurs back to the country.

Armstrong sat down for an interview with Wall Street Journal on June 11, just days after the SEC filed a lawsuit against Coinbase on June 6. The SEC alleged that Coinbase has been operating a securities exchange, broker-dealership and clearing house without registering with the commission.

Full WSJ interview on YouTubehttps://t.co/yIF3dGI7oN
— Brian Armstrong ️ (@brian_armstrong) June 10, 2023

Armstrong addressed the lawsuit in the WSJ interview, explaining that he believes those registrations weren't required for Coinbase to operate.

“The assets that we do trade, those are commodities, so they don’t require those registrations […] we are trading on our exchange crypto commodities.”

Despite not claiming to be one, Armstrong also noted that Coinbase has faced difficulties in activating its broker-dealer license.

“We don’t claim to be a broker-dealer, we have acquired a broker-dealer license that is still dormant, because they won’t allow us to activate it” he said.

As for regulations, Armstrong explained that it isn’t “rocket science” and the U.S will acheive the “right outcome, even if it takes a while.”

He pointed out that the SEC v Coinbase lawsuit is important for the U.S. cryptocurrency industry as a whole, with hopes it will lead to more clarity and prevent the country from “falling behind” the rest of the world.

Armstrong is of the opinon that once there is clear and stable regulations regarding cryptocurrency in the U.S., it will encourage the return of crypto businesses to the country.

“We will see entrepreneurs who left the US come back. They’ll say we won’t be attacked randomly or have incredibly high legal bills at any given moment.”

Cointelegraph previously reported on April 11 that the share of global crypto developers in the US declined by 26% from 2018 to 2022, with the report citing “little regulatory clarity” as a major factor and as a result “America’s edge may be slipping.”

Armstrong highlighted key regulation points that he believes need to be clarified, including clear “boundaries” between the two major United States financial regulators – the SEC and the Commodity Futures Trading Commission (CFTC).

He pointed out that while other countries, such as the United Kingdom have one financial regulator, the US is currently witnessing a “turf war” due to having two regulatory bodies.

He believes that many of the fundamental regulations can simply be transferred from traditional finance such as basic consumer protection, financial statement audit requirements, and procedures for both Anti-Money-Laundering (AML) and Know Your Customer (KYC).

Armstrong reiterated that there is currently "no clear rule book" for cryptocurrency regulations in the U.S., and despite continuously asking the SEC for more clarity, Coinbase couldn't "get any feedback."

This comes after Armstrong responded to the SEC lawsuit against Coinbase over Twitter, on June 7, saying that he is proud to “represent the industry in court” and get some “clarity around crypto rules."

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Ooki DAO to shut down after ‘precedent setting’ court battle with CFTC

June 10, 2023 Coin Telegraph

bZeroX

The CFTC highlighted that “critically, in a precedent-setting decision” the Ooki DAO was held in court as “‘person’ under the Commodity Exchange Act.”

A U.S. District Judge has entered a default judgment order that requires Decentralized Organization Ooki DAO to permanently shut down and pay a civil monetary penalty of $643,542.

Today the CFTC’s Division of Enforcement Director Ian McGinley released a statement on the Ooki DAO litigation victory. Learn more: https://t.co/MInNeKLeH5
— CFTC (@CFTC) June 9, 2023

The Commodity Futures Trading Commission initially filed a lawsuit against Ooki DAO in September 2022, accusing the DAO of illegally offering retail margin and leverage trading services, and “unlawfully acting” as a futures commission merchant.

A default judgment had essentially been on the cards for months after Ooki DAO missed the deadline to respond to the lawsuit in January.

With the order now official as of June 9, the CFTC released a statement on the same day describing the lawsuit as a “sweeping victory” as it outlined the full scope of the default judgment.

Ooki DAO has received “permanent trading and registration bans” and moving forward it has been ordered to shut down the Ooki DAO website and “remove its content from the Internet.”

“Critically, in a precedent-setting decision, the court held that the Ooki DAO is a ‘person’ under the Commodity Exchange Act and thus can be held liable for violations of the law. The court then held that the Ooki DAO did, in fact, violate the law as charged.”

This case against Ooki DAO was unique as it marked one of the first times a government agency had gone after a DAO and its token holders.

Before this case, there was a belief held amongst the industry that DAOs and decentralized finance platforms were mostly protected from regulatory scrutiny due to their decentralized nature.

A key issue however, is that CFTC alleged that Tom Bean and Kyle Kistner, the founders of Ooki DAO’s predecessor bZeroX had intentionally attempted to hand over ownership of their non-compliant trading platform to the Ooki DAO to avoid any potential legal pushback.

“The founders created the Ooki DAO with an evasive purpose, and with the explicit goal of operating an illegal trading platform without legal accountability,” noted CFTC division of enforcement director Ian McGinley, adding that:

“This decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a DAO structure, intending to insulate themselves from law enforcement and ultimately putting the public at risk.”

Here in Ooki, the court found that DAO could be sued as California unincorporated association by CFTC in a federal case because state law applies to these formalities, and under Cali. law, "mutual consent" to form an association can be established by just holding a DAO token (!) pic.twitter.com/OR9fOPh2dT
— ross (@z0r0zzz) June 9, 2023

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