In a notable ruling, a Massachusetts district court declined to dismiss a complaint filed by the Commodity Future Trading Commission (“CFTC”) against an entity over an alleged fraudulent virtual currency offering, ruling that cryptocurrencies fall under the definition of “commodity” under the Commodity Exchange Act (“CEA”) and therefore may be duly regulated by the CFTC. (CFTC v. My Big Coin Pay, Inc., No. 18-10077 (D. Mass. Sept. 26, 2018)). Given that the CFTC has stated its intention to actively police the virtual currency markets, this decision is important in reinforcing the CFTC’s legal authority and jurisdiction over cryptocurrency offerings. Moreover, given that earlier this year a New York district court affirmed the CFTC’s jurisdiction over virtual currencies, this latest ruling is additional precedent in this regulatory area.
In January 2018, the CFTC brought suit against the defendant My Big Coin Pay, Inc. (“My Big Coin”), creator of the My Big Coin virtual currency (“MBC”), alleging that it was engaged in a fraudulent “virtual currency scheme” in violation of the CEA and a CFTC implementing regulation banning fraud or manipulation in connection with the sale of a commodity (17 C.F.R. §180.1(a)). Specifically, the CFTC alleged that the defendants fraudulently solicited customers by making false claims about MBC’s value, usage and trade status, and false statements that the virtual currency was backed by gold. The defendants also told investors that MBC was being “actively traded” on several currency exchanges, but, according to the CFTC, My Big Coin made up and arbitrarily changed the price of the MBC virtual currency to mimic the fluctuations of a legitimate, actively-traded virtual currency. As asserted by the CFTC, the defendants allegedly misappropriated over $6 million from customers for personal gain. The court previously issued a restraining order freezing the defendants’ assets.