A U.S. district court on Wednesday gave leave to the U.S. Commodity Futures Trading Commission (CFTC) to proceed with the lawsuit against Nevada-based My Big Coin Pay Inc. who had allegedly been operating a $6 million fraud, per the court’s Memorandum of Decision. The federal judge who presided over the case affirmed that the cryptocurrency in question falls within the definition of a commodity, and as a result gave the regulator the authority to charge for fraud since it falls within its jurisdiction.
The Alleged My Big Coin Scam
As the crackdown on virtual currency scams gained momentum, the CFTC pursued a case against technology entrepreneur, Randall Crater, and his corporate entity — My Big Coin — in January. Crater had allegedly perpetrated a $6 million fraud on naive individuals who were keen on purchasing the shady virtual currency.
In the lawsuit filed against Mr. Crater and My Big Coin, the CFTC accused the defendants of misappropriating $6 million from 28 clients by selecting a name that sounds like bitcoin and also claiming the cryptocurrency was backed by gold. The plaintiff further alleged the defendants falsely indicated the cryptocurrency had trading representation on several currency exchanges. Mark Gillespie, an associate of Crater, was also accused to have conned investors of their funds and then redirected such funds to personal bank accounts in connivance with Crater.
The defense counsel, however, attempted to dismiss the case on the grounds of virtual currency not being a tangible good or service on which futures contracts are being traded — the agency’s clear jurisdiction.
Judge Questions Both Parties
In reaching his judgment on the definition of a commodity, U.S. Judge Rya Zobel in Boston put questions to the defendants and plaintiff about the operations of cryptocurrencies. Zobel did not unilaterally overrule Cater’s request for the case to be dismissed but maintained she would decide in the shortest possible time.
In her judgment, she noted that My Big Coin fell under the classification of a commodity in line with the definition of the Commodity Exchange Act which incorporates broad categories. Following her clarification on the commodity status of virtual currencies and bitcoin futures, the CFTC by extension can exercise its oversight function on other virtual currencies.
“That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a ‘commodity’ under the Act,” she wrote in Wednesday’s judgment.
Controversy Still Remains
The lacuna on the jurisdiction over cryptocurrency remains evident in the United States. Earlier this year, a judgment delivered by U.S. District Judge Jack Weinstein in Brooklyn stated that CFTC could regulate virtual currencies as commodities. This ruling was leveraged by Crater’s counsel, who disputed its application over bitcoin on which futures contracts are traded.
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