What has happened?
A US district court has agreed that the Commodity Futures Trading Commission (CFTC) has the power to prosecute fraud involving virtual currencies.
What does this mean?
The US District Court for the District of Massachusetts has sided with the regulator's argument that My Big Coin (MBC) was a commodity under the Commodity Exchange Act (CEA).
The court said:
"My Big Coin is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin)."
According to the court, the term "commodity" applies to numerous products, including "all services rights and interests… in which contracts for future delivery are presently or in the future dealt with".
The case arises out of the decision by the CFTC to charge defendants Randall Crater; Mark Gillespie; John Roche; Michael Kruger; My Big Coin Pay, Inc; and My Big Coin, Inc, and various relief defendants with commodity fraud and misappropriation in relation to MBC.
The CFTC alleged that since at least January 2014, the defendants ran a fraudulent cryptocurrency scheme, in which they solicited customers to buy My Big Coin, by making "false statements and misleading claims about its value, usage, trade status and financial backing".
The defendants were accused of allegedly conning people out of more than $6 million and of using the funds to buy a home, luxury goods, travel and other items.
The defendants applied to dismiss the CFTC's case against them, arguing that MBC was not a commodity.
They also argued that the CFTC's anti-fraud authority over MBC extended only to fraudulent market manipulation and did not reach the fraud alleged against them.
The court has now ruled against the defendants' arguments.
The CFTC is seeking civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans and permanent injunctions against future violations of commodities laws.
This is the second case in which a court recognises that virtual currencies are commodities under the CEA and that the CFTC has the power to prosecute fraud involving cryptocurrencies.
In March, the US District Court for the Eastern District of New York ruled that the CFTC could bring a fraud lawsuit against Patrick K. McDonnell and his company, CabbageTech, Corp. (doing business as Coin Drop Markets).
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