WASHINGTON, D.C. – Tom Bean and Kyle Kistner, founders of bZeroX, LLC, have been charged with illegally offering leveraged and margined retail commodity transactions in digital assets, the Commodity Futures Trading Commission (CFTC) announced today, September 22, 2022. The CFTC simultaneously filed and settled charges against the pair and their company for operating outside of regulatory oversight.
The charges stem from the operation of a decentralized blockchain-based software protocol, known as the bZx Protocol, which functioned as a trading platform. Between approximately June 1, 2019, and August 23, 2021, Bean and Kistner designed, deployed, and marketed this protocol, allowing users to engage in margined and leveraged trades of digital assets without proper registration or compliance.
The CFTC alleges that bZeroX engaged in activities exclusively reserved for registered futures commission merchants (FCMs), and failed to implement a mandatory customer identification program required for Bank Secrecy Act compliance. The protocol allowed users to contribute margin (collateral) to open leveraged positions based on price differences between digital assets.
As part of the settlement, Bean, Kistner, and bZeroX will pay a combined $250,000 civil monetary penalty and are ordered to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations. Simultaneously, the CFTC filed a separate federal civil enforcement action against Ooki DAO – a decentralized autonomous organization and successor to bZeroX – in the U.S. District Court for the Northern District of California.
The CFTC’s complaint against Ooki DAO seeks restitution, disgorgement of ill-gotten gains, additional civil monetary penalties, trading and registration bans, and injunctions to prevent future violations.
“Today’s actions demonstrate the CFTC’s commitment to aggressively pursuing individuals and their operations who purposefully seek to evade regulatory oversight at the expense of retail customers,” stated CFTC Chairman Rostin Behnam. Acting Director of Enforcement Gretchen Lowe added that the actions underscore the agency’s efforts to protect U.S. customers in the evolving decentralized finance landscape, emphasizing that leveraged digital asset trading must occur on registered and regulated exchanges.
The case highlights the CFTC’s growing scrutiny of decentralized finance (DeFi) platforms and their adherence to existing commodity trading regulations.
Source: CFTC.gov
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