SAN FRANCISCO, CA – Francisco Riordan, CEO of Coinflip, Inc. (d/b/a Derivabit), has been charged with violating federal commodity trading laws, the Commodity Futures Trading Commission (CFTC) announced today. The charges stem from the operation of an online platform, Derivabit, that facilitated the trading of Bitcoin options contracts without proper registration or compliance with CFTC regulations.
According to the CFTC’s order, between March 2014 and at least August 2014, Riordan and Coinflip operated Derivabit, connecting buyers and sellers of Bitcoin options. The CFTC found that the platform designated put and call options for Bitcoin as eligible for trading, but failed to adhere to regulations governing commodity option transactions. Specifically, the company did not comply with rules applicable to swaps or qualify for the CFTC’s trade option exemption.
The CFTC’s investigation marks the first time the agency has officially recognized Bitcoin and other virtual currencies as commodities. The order further alleges that Coinflip operated a facility for trading swaps without registering as a Swap Execution Facility or Designated Contract Market, as required by law.
As CEO, Riordan is held liable for Coinflip’s violations due to his control over the company and failure to act in good faith. The CFTC asserts that Riordan knowingly induced, directly or indirectly, Coinflip’s unlawful activities.
The order requires both Coinflip and Riordan to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations. While the order doesn’t specify a monetary penalty, it mandates compliance with certain undertakings to prevent future violations. The CFTC’s Director of Enforcement, Aitan Goelman, emphasized that innovation in the virtual currency space does not exempt participants from adhering to established regulatory rules.
The investigation was led by David W. Oakland, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan of the CFTC’s Division of Enforcement. Coinflip and Riordan reportedly cooperated with the investigation.
Source: CFTC.gov
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