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CFTC Fines Bitcoin Exchange Bitfinex $75,000 For Offering “Illegal” Transactions

Last Updated March 4, 2021 4:48 PM
Lester Coleman
Last Updated March 4, 2021 4:48 PM

The U.S. Commodity Futures Trading Commission (CFTC) ordered Bitfinex, a Hong Kong-based bitcoin exchange, to pay $75,000 for offering illegal, off-exchange, financed retail commodity transactions in cryptocurrencies, and for failing to register as a futures commission merchant (FCM) as required by law, according to a CFTC press release .

The order requires the exchange to cease and desist from future violations of the Commodity Exchange Act (CEA).

CFTC Cites Dodd-Frank Act

From April 2013 to at least February 2016, the CFTC found Bitfinex allowed users to borrow funds from one another to trade bitcoins on a margined, leveraged or financed basis. The commission further found the exchange did not deliver the bitcoins to the traders who bought them. Instead, it held the bitcoins in wallets that it owned.

The order noted that under the Dodd-Frank Act, financed commodity transactions must be conducted on an exchange unless the entity offering the transactions can establish that actual delivery of the bitcoins results within 28 days.

The CFTC cited a federal court ruling recognizing that “actual delivery” requires a transfer of “possession and control” of the commodity and providing “real and immediate possession to the buyer or the buyer’s agent.”

Further Violations Cited

By offering to enter into, execute, and/or confirm the execution of off-exchange, financed, retail commodity transactions, Bitfinex violated the requirement that such transactions must be conducted on a derivatives transaction execution facility or designated contract market.

Because the transactions did not result in actual delivery of bitcoins, Bitfinex could not rely on an exception to the CFTC’s jurisdiction over such transactions permitted under the law.

CFTC further found Bitfinex accepted orders and received funds in connection with retail commodity transactions without being registered as an FCM, as required by law. FCMs include all persons engaged in soliciting or accepting orders for retail commodity transactions or who accept money in connection with such transactions, the order noted. Bitfinex has never been registered in such a capacity.

Also read: CFTC: BTC is a commodity 

CFTC Oversees Bitcoin Futures And Options

The CFTC last year recognized bitcoin as a commodity when it settled with a bitcoin exchange for trading option contracts after an enforcement case against a bitcoin operator, CCN.com reported in September. CFTC has the authority to oversee cryptocurrency futures and options. Bitcoin derivatives and futures platforms must register as a swap execution facility or designated contract market.

The CFTC recognized Bitfinex’s cooperation with the Division of Enforcement’s investigation. Bitfinex also voluntarily made some changes to its business practices to comply with the CEA, the order noted.

The CFTC Division of Enforcement staff members responsible for this action are Susan Gradman, Melissa Cavers, Scott Williamson, Michael Frisch and Rosemary Hollinger.

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