A legal case involving virtual currency My Big Coin is being closely watched because the outcome could determine if the US Commodity Futures Trading Commission ( CFTC ) has the authority to fight fraud associated with cryptocurrencies.

In January the CFTC filed a lawsuit against entrepreneur Randall Crater and a company he founded, alleging they perpetrated a $6m fraud for customers of My Big Coin. The CFTC says the defendants misappropriated $6m from 28 customers by naming their virtual currency to sound like bitcoin and further claiming it was backed by gold.

Reuters report that lawyers not involved in the suit believe this particular case raises a new challenge to the CFTC’s oversight of cryptocurrencies because an earlier case, in March this year, determined that virtual currencies can be regulated by the agency as a commodity.

However, Crater’s attorneys argue that the previous ruling involved bitcoin, for which futures are traded. Crater’s legal team argue the CFTC has no authority over My Big Coin because it is not a commodity that is traded using futures contracts, the usual focus of the agency’s enforcement regime.

Katherine Cooper, a lawyer for Crater said:

“Our argument boils down to the fact that because My Big Coin does not have future contracts or other derivatives trading on it, it is not a commodity,”

Katherine Cooper

The industry is watching the case to see if the court decides against the CFTC because the outcome will have a major impact on policing cryptocurrency frauds.

“It would have a chilling effect on the CFTC’s application of its powers in this area,” said Gregory Kaufman, a lawyer with the law firm Eversheds Sutherland.