On Wednesday (26 September 2018), Reuters reported that Rya Weickert Zobel , a Senior U.S. District Court Judge, had confirmed that the U.S. Commodity Futures Trading Commission (CFTC) may continue its oversight of all cryptocurrencies.
On 24 January 2018, the CFTC announced via a press release that it had filed "a federal court enforcement action under seal on January 16, 2018, charging commodity fraud and misappropriation related to the ongoing solicitation of customers for a virtual currency known as My Big Coin (MBC)." The Complaint charged "Defendants Randall Crater of East Hampton, New York, Mark Gillespie of Hartland, Michigan, and My Big Coin Pay, Inc., a corporation based in Las Vegas, Nevada, with misappropriating over $6 million from customers by, among other things, transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods." The CFTC also said that on 16 January 2018 (the date the Complaint was filed), Judge Rya Zobel of the U.S. District Court for the District of Massachusetts , had "issued a restraining Order, also under seal, freezing the Defendants’ assets."
The CFTC's Complaint said that the Defendants' "fraudulent acts and practices" were in violation of Section 6(c)(l) of the Commodity Exchange Act (CEA) and the Commission's Regulation 180.l(a). It also said that "virtual currencies are encompassed in the definition of 'commodity' under Section la(9) of the Act."
Randall Crater's lawyers had tried to dismiss the case, arguing that the CFTC had no right to regulate the virtual currency MBC since it is "neither a tangible good nor a service on which future contracts are being traded."
According to the memorandum of the court's decision , here are some of Judge Zobel's observations that led to her decision to deny the motion to dismiss:
- "... to state a viable claim, plaintiff [CFTC] must adequately plead that MyBig Coin is a commodity."
- "The text of the statute supports plaintiff’s argument. The Act defines 'commodity' generally and categorically, 'not by type, grade, quality, brand, producer, manufacturer, or form'."
- "... the scant case law on this issue also supports plaintiff’s approach. In a series of cases involving natural gas, courts have repeatedly rejected arguments that a particular type of natural gas was not a commodity because that specific type was not the subject of a futures contract."
- Previous decisions in cases involving other commodities (such as natural gas) support the plaintiff's view that "the CEA only requires the existence of futures trading within a certain class (e.g. “natural gas”) in order for all items within that class (e.g. “West Coast” natural gas) to be considered commodities."
- "... the amended complaint alleges that My Big Coin is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin). That is sufficient, especially at the pleading stage, for plaintiff to allege that MyBig Coin is a “commodity” under the Act."
Judge Zobel's acceptance of the CFTC's allegation that MBC is a commodity means that the case may now move forward to the jury trial demanded by the CFTC.
Katherine Cooper, Crater's lawyer, said via email:
We are disappointed in the result. Now that we are moving past the motion to dismiss phase of the case, we look forward to challenging the CFTC’s ability to prove many of the factual allegations in the complaint. Among those factual allegations are those which speak to the relatedness of bitcoin and My Big Coin and therefore the CFTC’s jurisdiction.
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