The Commodity Futures Trading Commission (“CFTC”) fined iFinex Inc., BFXNA Inc., and VFXWW Inc. (collectively, “Bitfinex”) $1,500,000 for offering financed retail commodity transactions sans regulations by a board of trade designated or registered by the CFTC. Bitfinex violated a 2016 CFTC order when it offered those financed retail commodity transactions to U.S. customers that weren’t eligible contract participants. Bitfinex also acted as a futures commission merchant by taking currency and digital assets for executing leveraged or margined trades. Bitfinex liquidated a customer’s positions if the value held in that customer’s “margin wallet” fell below the amount of margin Bitfinex required for that customer’s open positions. When Bitfinex liquidated those positions, it acted as the counterparty. Although Bitfinex’s terms of service claimed U.S. persons that weren’t eligible contract participants couldn’t access Bitfinex’s services, only a name and a valid email address were required to open an account with Bitfinex. And, while Bitfinex represented that it performed internet protocol/location checks for all customers for all accounts, Bitfinex knew that some U.S. customers that weren’t eligible contract participants continued to use its platform despite its terms of service. Quoting a Bitfinex manager’s reminder to the customer support team that customers “can deposit/withdraw cryptocurrencies and trade fully (including USD Pairs) without being verified on our site, there are no limits to this,” the CFTC found Bitfinex’s attempts to limit access to its platform to comply with the previous consent order inadequate. Further, the CFTC pointed out that Bitfinex’s customer service representatives worked with U.S. customers to change addresses or other features of their account information that identified those customers as being in the U.S. Those customer service representatives even urged some of those U.S. customers to use a virtual private network to mask a U.S.-internet protocol address from Bitfinex.
Commissioner Stump concurred in these findings and reiterated her belief that the CFTC should explain, perhaps through additional regulations, how an entity like Bitfinex could act as a futures commission merchant and an exchange while complying with the law.
For more details about these CFTC enforcement actions, visit https://www.cftc.gov/LawRegulation/EnforcementActions/index.htm