May 2022 | Volume 42 | Issue 5 Futures and Derivatives Law Report offering transactions in digital assets . 66 The Commission also made history when it charged a manipulative scheme involving digital assets for the first time . 67
In one case demonstrating the role that the regulatory violations framework plays in the enforcement program for digital assets , the CFTC levied a $ 1.25 million penalty against one of the nation ’ s largest digital asset exchanges for offering illegal off-exchange trading in digital assets and failing to register as an FCM . 68 The Commission found that the company engaged in margined retail commodity transactions with customers in which they never transferred possession and control of the entire quantity of the assets purchased using margin . The CFTC argues that this resulted in denying customers the ability to use the entirety of the assets “ freely in commerce away from the execution venue until the customer satisfied the repayment obligation .” 69 The company was charged with significant undertakings going forward , including “ implement [ ing ] and maintain [ ing ] systems and procedures reasonably designed to prevent margined or leveraged trading on Respondent ’ s trading platform by U . S . residents who are not eligible ECPs .” 70
In another case , the CFTC ordered a U . S . - based international digital asset exchange operator to pay $ 6.5 million for false , misleading , or inaccurate reporting and wash trading . 71 The Commission alleged that the exchange “ matched orders ” between its two independent automated trading programs “ with one another in certain trading pairs , resulting in trades between accounts owned by [ the exchange ],” which permitted at least one employee to conduct “ wash trades .” Notably , Commissioner Stump issued a concurring statement in which she emphasized the limits of the CFTC ’ s jurisdiction over digital assets , noting that the CFTC does not regulate cash digital asset exchanges , but rather regulates certain derivatives products . 72 Commissioner Stump again reiterated the notion that the CFTC does not regulate cash transactions or other digital assets more recently in another digital asset enforcement case brought on March 8 , 2022 , in which the CFTC charged several individuals with fraud for engaging in Ponzi schemes involving Bitcoin . 73 In her concurring statement , Commissioner Stump made clear that while the CFTC does not regulate cash commodities , it does have the authority to initiate enforcement actions involving cash commodities . 74
The CFTC and the Financial Crimes Enforcement Network of the U . S . Department of Treasury (“ FinCEN ”) made waves after the CFTC issued a complaint against BitMEX , a convertible virtual currency derivatives exchange , for violations of the Bank Secrecy Act (“ BSA ”), regulatory violations , and violations of FinCEN ’ s implementing regulations . 75 The complaint was filed on the first day of FY 2021 , and was announced concurrently with criminal charges against BitMEX ’ s founders . 76 A federal court has since entered a consent order requiring BitMEX to pay a $ 100 million civil monetary penalty , to be split between the CFTC and FinCEN . 77 Despite advertising its product as a “ perpetual Bitcoin U . S . dollar leveraged swap product ” and “ the XBTUSD perpetual swap ,” and despite describing its “ perpetual swap contract ” as “ a product similar to a traditional Futures Contract in how it trades ,” BitMEX never registered with the CFTC as a regulated exchange , like a designated contract market (“ DCM ”) or a swap execution facility (“ SEF ”). In a press release announcing that the BitMEX founders had pled guilty to
8 K 2022 Thomson Reuters