CFTC Can Regulate Cryptocurrencies As Commodities – Federal Judge Rules

Crime, News, Regulation | September 27, 2018 By:

A federal judge has supported the US Commodity Futures Trading Commission’s stance that cryptocurrencies are commodities, allowing the derivatives regulator to pursue fraud allegations against My Big Coin Pay.

In January of this year, the CFTC filed a federal court enforcement action against Randall Crater, Mark Gillespie and My Big Coin Pay, alleging that they perpetrated a $6 million fraud on investors who wanted to buy My Big Coin (MBC). They allegedly lured 28 investors by claiming that MBC was backed by gold. The defendants allegedly transferred customer funds into personal bank accounts, and used those funds for personal expenses and the purchase of luxury goods.

At the time, Judge Rya W. Zobel of the Massachusetts District Court issued a restraining order, freezing the defendants’ assets. In addition, the judge also issued bank account freeze orders against relief defendants Kimberly Renee Benge, Barbara Crater Meeks, Erica Crater, Greyshore and Greyshore Technology, LLC for allegedly receiving customer funds without providing any legitimate services to clients and without any interest or entitlement to such customer funds.

“The Defendants fraudulently solicited potential and existing MBC customers throughout the United States by making false and misleading claims and omissions about MBC’s value, usage, and trade status, and that MBC was backed by gold,” the complaint said. “Defendants also allegedly fraudulently solicited numerous customers in the District of Massachusetts, receiving in excess of $5 million from those customers.”

The CFTC is seeking civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act (CEA).

Randall Crater and all relief defendants had moved to dismiss the case, arguing that the CFTC fails to state a claim because MBC is not a commodity within the meaning of the Act.

“Our argument boils down to the fact that because My Big Coin does not have future contracts or other derivatives trading on it, it is not a commodity,” said Katherine Cooper, Crater’s lawyer.

On Wednesday, Judge Zobel ruled that MBC can be considered a commodity because it is a cryptocurrency like bitcoin, and bitcoin is traded via exchanges, and there are futures contracts linked to it. As a result of the ruling, the case may now move forward.

“That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a ‘commodity’ under the Act,” Zobel said.

In an email to Reuters, Cooper expressed disappointment in the result, saying that: “Now that we are moving past the motion to dismiss phase of the case, we look forward to challenging the CFTC’s ability to prove many of the factual allegations in the complaint. Among those factual allegations are those which speak to the relatedness of bitcoin and My Big Coin and therefore the CFTC’s jurisdiction.”