CFTC Enforcement Director Touts Actions Against Crypto Firms

CFTC Enforcement Director Ian McGinley reported that "digital asset cases accounted for almost 50% of our docket," and that "the majority of our whistleblower tips last fiscal year related to digital assets."

In remarks at the City Bar White Collar Institute, Mr. McGinely explained that over the years, "the players, the regulatory issues, and, in some instances, the violative conduct have become much more sophisticated." He said the digital asset environment has moved "from individuals holding a token in a wallet to an environment with domestic and foreign self-described exchanges, prime brokers, ETFs, decentralized platforms and, increasingly, the participation of the full range of traditional financial firms."

Beyond fraud and manipulation cases, he highlighted three topics that have been a focus for the Division:

• Anti-evasion under Regulation 1.6, which prohibits activities conducted outside the U.S., including entering into transactions and structuring entities to willfully evade or attempt to evade rules governing the regulation of swaps. Mr. McGinley reported that the CFTC used this regulation "for the first time in our landmark Binance case and will use it again where appropriate." (See related coverage.)
• Claims against third party intermediaries, who may connect U.S.-based market participants to unregistered and lawbreaking entities." He pointed to a recent enforcement action which was the first CFTC action against an intermediary in the digital asset space. (See related coverage.)
• Registration and supervisory failures on Know Your Customer ("KYC") rules, anti-money laundering  regulations ("AML") and customer identification programs ("CIP"). He highlighted a case where founders created a for-profit trading platform without KYC or AML verification, and attempted to evade regulation by transitioning control to a decentralized autonomous organization ("DAO"). He said the case established a precedent that DAOs are subject to the Commodity Exchange Act. (See related coverage.)