Washington, D.C. – Hong Kong-based cryptocurrency exchange Bitfinex has been penalized $75,000 by the Commodity Futures Trading Commission (CFTC) for offering illegal, off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies. The CFTC also found that Bitfinex failed to register as a Futures Commission Merchant (FCM) as required by the Commodity Exchange Act (CEA).
The enforcement action, detailed in an order issued today, centers around Bitfinex’s practices between April 2013 and February 2016. During this period, the platform allowed users to borrow funds to trade bitcoins on a leveraged basis without ensuring actual delivery of the cryptocurrency. Instead of transferring ownership to purchasers, Bitfinex maintained control of the bitcoins within its own deposit wallets.
According to the CFTC, these transactions violated the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandates that financed commodity transactions, including those involving cryptocurrencies, must be conducted on registered exchanges unless actual delivery of the commodity occurs within 28 days. The agency argues that Bitfinex did not meet this requirement, as it retained possession and control of the traded bitcoins.
Specifically, the CFTC found Bitfinex in violation of Section 4(a) of the CEA, which requires such transactions to occur on a designated contract market or derivatives transaction execution facility. The company also violated Section 4d(a) by accepting orders and funds for retail commodity transactions without being registered as an FCM. Bitfinex has never been registered with the CFTC in any capacity.
The CFTC acknowledged Bitfinex’s cooperation during the investigation and its subsequent voluntary changes to business practices aimed at achieving compliance with the CEA. As part of the settlement, Bitfinex is required to cease and desist from future violations of the Commodity Exchange Act.
The case was led by CFTC staff members Melissa Cavers, Michael Frisch, Susan Gradman, Scott Williamson, and Rosemary Hollinger.
Source: CFTC.gov
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