To print this article, all you need is to be registered or login on Mondaq.com.
The Commodity Futures Trading Commission (“CFTC”) has
two levels of jurisdiction under the Commodity Exchange Act
First, there is an exclusive (or regulatory) jurisdiction over
“derivatives” on “commodities,” where the CFTC
can regulate how, where, by whom and when derivatives trade.
Derivatives traditionally include swaps, options and futures on
In addition, CFTC also has the non-exclusive jurisdiction to
prosecute fraud and manipulation relating to a contract of sale of
any “commodity” in interstate commerce. This is also
referred to as enforcement jurisdiction, which may be concurrent
with enforcement or regulatory jurisdiction of other regulators,
such as the Securities and Exchange Commission (“SEC”).
The CFTC rarely exercises this jurisdiction because it is so
immensely broad and is only limited by the subject matter –
the fraud and manipulation needs to occur with respect to a
“commodity.” Most fungible things that are traded in
interstate commerce are recognized as “commodities,” even
if they are not specifically defined as such in the CEA § 1a(9). Virtual currencies, such as
Bitcoin, ether, verge, dogecoin, and reddcoin, have been recognized
as “commodities” by the CFTC and several courts.
On July 14, the U.S. District Court for the Southern District of
New York entered a consent order in CFTC v. McAffee and
Watson for violations of the CEA and CFTC regulations. McAffee
and Watson on several occasions through mass media aggressively
“pumped up” the market in specific cryptocurrencies,
issuing recommendations to buy without disclosing that they had
built up their own inventory of the cryptocurrencies before the
commencement of the advertisement campaign. Then, when the price
had significantly increased, they “dumped” the crypto,
realizing a significant profit.
Even though no derivatives were involved, the CFTC alleged that
this scheme constituted a fraud on the market and manipulation of
commodity prices in violation of § 6(c)(1), § 6(c)(3) and
§ 9(a)(2) of the CEA, and § 180.1 and § 180.2 of the
This case is significant as one of very few cases where the CFTC
was successfully able to assert its enforcement jurisdiction over
commodity transactions, as opposed to its traditional jurisdiction
over commodity derivatives. Considering several Congressional
proposals (here and here) to expand CFTC’s exclusive
(regulatory) jurisdiction over cash commodity markets in
cryptocurrencies, this case demonstrates that the CFTC is ready and
able to take on this additional role. To that end, the Chairman of
the CFTC has announced on July 26 the formation of the CFTC
Office of Technology Innovation to spearhead its FinTech and
digital assets regulatory focus.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
POPULAR ARTICLES ON: Finance and Banking from United States