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Lawyers for CFTC Blockchain & Cryptocurrency Compliance

Experienced CFTC Compliance Team

Do you need CFTC compliance advice regarding blockchain technology or cryptocurrency? Are you worried about CFTC jurisdiction over your blockchain company or crypto activities? If so, then you need the advice of an experienced CFTC compliance team.

Digital assets and blockchain technology are transforming the world and can create a transformative impact on individuals and businesses across the globe. The U.S: government is also impacted—including CFTC-regulated individuals and markets.

As federal agencies become aware of the need to increase their regulatory scope in emerging areas such as blockchain and crypto, blockchain companies and companies dealing with cryptocurrencies face significant risks.

This has led to more investigations for fraud, manipulative behavior, and an expanded scope of the CFTC’s jurisdiction. Blockchain companies and companies handling cryptocurrencies are at an increased risk of federal scrutiny.

At Oberheiden, P.C., we can provide you with a comprehensive evaluation of how and to what extent CFTC issues arise in your business. Our team of CFTC Compliance attorneys and consultants conducts detailed compliance reviews and outlines steps for improvement and enhanced compliance.

New technologies are a part of modern financial markets and innovation. But CFTC investigations don’t have to come along with it. Let us help protect you.

Put Oberheiden, P.C. on your side today to resolve your compliance issues and advise you on CFTC compliance in the blockchain and crypto areas.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena
Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Michael Koslow
Michael Koslow

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

The Regulatory Scope of the CFTC

The CFTC stands for the Commodity Futures Trading Commission. The CFTC seeks to foster open and competitive derivative trading markets that is free from fraud, manipulation, and abuse under the Commodity Exchange Act (“CEA”).

The CFTC is vested with the responsibility to prevent price manipulation; ensure financial integrity in market transactions; protect against the misuse of customer assets; and promote fair competition and innovation in trading practices, within markets, and among market participants.

The CFTC has oversight authority over futures contracts, options, and derivatives contracts.

The definition of a “commodity” under the CEA is very broad. While it covers agricultural products such as wheat and natural resources such as gold and oil, it may also cover currencies and interests in contracts for future delivery.

The CFTC and Virtual Currencies

In 2014, the CFTC declared that virtual currencies are “commodities” and therefore are subject to the regulatory oversight of the CFTC under the CEA.

A few months later in 2015, the CFTC defined Bitcoin as “commodities,” not securities. In this enforcement case, the CFTC basically held that the individuals who created the Bitcoin trading platform were operating a trading facility for trading swaps without being registered as a swap execution facility or as a designated contract market.

The CFTC determined that under the CEA, “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”

A few years later that CFTC Chairman determined that Ether is also a commodity and falls under the authority of the CFTC, as does Bitcoin.

In other words, virtual currencies are “commodities” under the CEA where the Securities and Exchange Commission (“SEC”) does not have regulatory oversight and where the currencies are not deemed a “security” under the federal securities laws.

Bitcoin and Ether, prominently, are distinct from traditional fiat currencies. They do not need nor require a centralized authority to issue them or facilitate transactions.

Instead, Bitcoin and Ether’s respective blockchains authorize new transactions and generate new coins.

Thus, when virtual currencies are involved such as where a virtual currency is used in a derivative contract or where there is fraud involving a virtual currency, the CFTC maintains enforcement authority over antifraud provisions and market manipulation within the virtual currency markets in interstate commerce.

CFTC Position and Guidance on Virtual Currencies

The CFTC is actively monitoring companies’ business operations for behavior that could implicate its jurisdiction and run afoul of the CEA.

The CFTC focuses most of its investigations and attention on virtual currency derivative markets and allegations of fraud in cash or spot markets.

In early 2018, it published a report on its “Approach to Virtual Currency Futures Markets” where it outlined oversight responsibilities, its heightened review stance on virtual currency contracts, and possible parties that may be impacted in the future.

The CFTC noted in this report that a responsible regulatory response to regulating virtual currencies involves a combination and consideration of consumer education, legal authority, market intelligence, robust enforcement, and government-wide coordination.

In addition to its own investigations, the CFTC also coordinates its investigative efforts, tools, and resources with other federal agencies such as the SEC, Federal Bureau of Investigation (“FBI”), and the Department of Justice (“DOJ”). Oftentimes, the CFTC works with Congress and policymakers.

If you are worried about whether any impending rules or compliance guidance could impact your business or trading practices involving virtual currencies, give us a call today.

Recent CFTC Enforcement Cases in the Blockchain / Crypto Sphere

Even though the CFTC has been in second place next to the SEC in regulating blockchain/crypto companies, it has nevertheless brought vigorous and aggressive enforcement actions against crypto entities and trading platforms.

Notably, at the end of September 2021, the CFTC filed charges—a total of 14 complaints—against multiple crypto trading platforms for failing to register as futures commission merchants and for making false statements regarding having CFTC registration and NFA membership. Specifically, these entities offered the public the opportunity to purchase binary options based off commodities values such as cryptocurrencies and encouraged the public to transfer assets to them.

Also, in August and September 2021, the CFTC was involved in high stakes investigations and settlements with trading platforms, Kraken and BitMEX.

Kraken agreed to pay the CFTC $1.25 million to settle charges that it offered illegal margined digital asset transactions without registering as a Futures Commodity Merchant or a Designated Contract Market.

BitMEX also agreed to pay a fine to the CFTC and FinCEN in the amount of $100 million to settle civil charges that it offered U.S. customers leveraged and unlicensed products involving cryptocurrencies.

While the CFTC is seemingly focusing its attention on crypto derivatives, its aggressive position on blockchain and cryptos is clear. Acting Director of Enforcement Vincent McGonagle stated that cryptocurrency trading platforms must comply with the registration provisions and implement robust AML/KYC procedures if they want to operate legally within the growing digital asset market.

Need Advice with CFTC Blockchain & Cryptocurrency Compliance?

Are you worried about CFTC investigations and enforcement actions regarding your blockchain business or use of cryptocurrencies in your operations?

The CFTC has both the authority and the intent to initiate investigations for behavior involving crypto derivatives allegedly violating the CEA.

Even if settlements are reached quickly or are insignificant in amount, an investigation could lead to significant reputational harm and loss of business/customer relationships.

Do not let this happen to you. There are sometimes steps an attorney can take early on in a case to minimize the negative consequences even further.

At Oberheiden, P.C., our team of attorneys and consultants are experienced in CFTC regulation as applied in the blockchain and cryptocurrency industries. Our attorneys include former government and DOJ officials as well as attorneys from private practice.

Let us help you. Whether you need compliance advice or a comprehensive defense strategy to fight CFTC allegations or an investigation, we can help.

Call or contact us today for a free consultation.

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