Washington, D.C. – Falcon Labs, Ltd., a Seychelles-based entity, has been charged by the Commodity Futures Trading Commission (CFTC) with operating as an unregistered futures commission merchant (FCM). This marks the CFTC’s first enforcement action against an intermediary facilitating access to digital asset exchanges without proper registration.
The CFTC order, simultaneously filed and settled, requires Falcon Labs to cease and desist from acting as an unregistered FCM by providing U.S. persons access to digital asset derivatives trading platforms. The company must also pay $1,179,008 in disgorgement – funds obtained illegally – and a $589,504 civil monetary penalty. The penalty was reduced due to Falcon Labs’ substantial cooperation with the CFTC’s Division of Enforcement.
“The CFTC’s enforcement program has made clear it will not tolerate digital asset exchanges that fail to register with the CFTC or comply with the agency’s rules that maintain integrity in the derivatives markets,” stated Ian McGinley, Director of Enforcement. He emphasized the agency is expanding its focus to include intermediaries that enable unregistered exchanges, stating the CFTC “will not hesitate to charge any entities… who are providing customers access to digital asset products and services that require registration but have failed to appropriately register.”
According to the order, from approximately October 2021 through March 27, 2023, Falcon Labs solicited orders for digital asset derivatives from U.S. customers. The company functioned as an intermediary, facilitating trading on various digital asset exchanges, including institutional clients in the U.S. Falcon Labs created main accounts in its name and then associated sub-accounts for customers, often without providing customer-identifying information to the exchanges.
Falcon Labs collected approximately $1,179,008 in net fees from these transactions. The CFTC noted that Falcon Labs voluntarily enhanced its customer identification controls following a complaint filed against Changpeng Zhao and Binance, which also involved the use of sub-accounts for U.S. customers. The agency hopes this action will encourage other unlawfully operating digital asset intermediaries to come forward and report their activities.
The case was led by CFTC staff members Candy Haan, Joseph Platt, Joseph Patrick, Elizabeth N. Pendleton, Scott Williamson, and Robert T. Howell. The CFTC urges the public to verify a company’s registration before investing.
Source: CFTC.gov
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