CFTC flexes its muscles with near 50 crypto cases related to digital assets
The Commodity Futures Trading Commission brought a record number of enforcement actions related to digital assets in its 2023 fiscal year, stepping up its oversight of the nascent crypto market, according to the agency’s latest report.
According to a report, the CFTC filed 47 cases related to cryptocurrencies and digital assets, representing nearly half of the 96 total enforcement actions for the fiscal year ending September 30. This marks a significant increase from fiscal year 2022, when the agency brought 18 crypto-related cases out of 82 total actions.
“The Commission continues to remain laser-focused on stopping and deterring fraud and manipulation in the U.S.,” said CFTC Chair Rostin Behnam in a statement. “I am proud of the Division of Enforcement’s groundbreaking work in the digital asset space, which resulted in a record number of cases.”
The ramped-up oversight comes as crypto assets like Bitcoin and Ethereum have exploded in popularity in recent years.
The total market value of cryptocurrencies surpassed $3 trillion in late 2021, though it has since declined significantly amid broader economic turbulence.
Several CFTC cases targeted significant players in the crypto sector accused of violating commodities trading laws. In one of the most prominent actions, the agency charged former FTX CEO Sam Bankman-Fried with fraud and misuse of customer funds in October, alleging he secretly transferred billions of dollars in client money to support his hedge fund Alameda Research. FTX, previously one of the world’s largest crypto exchanges, collapsed into bankruptcy in November, leaving customers unable to access billions in deposits.
Other charges by CFTC against crypto exchange Binance
The CFTC also brought charges against crypto exchange Binance, the world’s largest by trading volume, and its CEO Changpeng Zhao. The agency accused Binance of operating an unregistered futures exchange and making false statements about its anti-money laundering procedures. Binance agreed to pay $1 billion in fines and cease offering futures trading to U.S. customers to settle the case in December.
In September, the CFTC charged crypto lending platform Celsius Network and its former CEO Alex Mashinsky with fraud, alleging they misled customers and mishandled investments, leading to $4.7 billion in losses. Celsius filed for bankruptcy in July after freezing customer withdrawals.
In addition to targeting major centralized crypto platforms, the CFTC has increasingly focused its enforcement on the decentralized finance (DeFi) ecosystem. DeFi platforms allow users to trade crypto assets, borrow, and lend without centralized intermediaries through automated smart contracts. While advocates argue that DeFi democratizes finance, regulators have warned the technologies enable illegal activities.
In September, the CFTC brought charges against three DeFi protocols — Opyn, ZeroEx, and DeRouter — for allegedly offering illegal derivatives trading. The platforms agreed to pay fines between $100,000 to $250,000 to settle the cases.
Legal experts said the cases set an important precedent establishing the CFTC’s jurisdiction over DeFi. The agency gained another win in September after decentralized exchange developer Ooki DAO settled charges it operated an unregistered trading platform.
The posturing by CFTC is drawing criticism
The CFTC’s assertive posture toward crypto enforcement has drawn some criticism from industry participants who argue it overreaches the agency’s authority. Crypto investment firm Paradigm published a legal memorandum arguing the CFTC cannot hold developers of decentralized protocols liable for their users’ actions. The firm said the agency needs to provide evidence individual contributors violated commodities laws.
Despite the pushback, most legal analysts expect the CFTC to continue aggressively policing the crypto sector. The House of Representatives is currently considering legislation that would provide the CFTC with expanded authority over digital asset markets.
As crypto becomes further enmeshed in mainstream finance, the CFTC appears intent on preventing the types of meltdowns and alleged frauds that rocked the industry in 2022. With dozens of new cases in 2023, regulators have put the crypto sector on notice.
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