The CFTC officially classifies crypto assets as commodities – CryptoMode
The Commodity Futures Trading Commission (CFTC) has recently initiated a civil enforcement action against Rashawn Russell, a former investment banker at Deutsche Bank. The lawsuit, filed in the U.S. District Court for the Eastern District of New York, alleges that Russell deceptively persuaded retail investors to invest in a digital asset trading fund and defrauded them of nearly $1 million. Accordingly, the CFTC has charged Russell with one count of fraud.
Fraudulent solicitation of investments in funds for trading in digital assets
Between November 2020 and July 2022, Russell allegedly solicited retail investors to provide Bitcoin, Ether and fiat currency for investment in his alleged proprietary digital asset trading fund. In addition, he falsely assured them that they would incur no losses, and in certain cases even promised a minimum 25% return on investment.
The charges against Russell include knowingly or recklessly making misleading statements about the fund’s structure, size and performance. Additionally, he is accused of falsely promising to fulfill withdrawal requests and compensate investors in USDC.
The lawsuit alleges Russell used the funds raised to cover personal expenses, fund entities related to gambling activities and make Ponzi-style payments to existing investors.
The CFTC has sought injunctive relief, rescission, civil monetary penalties, and permanent trading and registration bans in response to these allegations. In addition, the regulator is pursuing a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
Ian McGinley, the CFTC’s director of enforcement, emphasized the regulator’s commitment to protecting retail investors from fraud in the digital asset space, stating, “As today’s action demonstrates, the CFTC is relentless in holding bad actors accountable.”
CFTC and SEC diverge on classification of cryptoassets
While the United States Securities and Exchange Commission (SEC) insists that certain cryptoassets should be considered securities, the CFTC has reaffirmed its position that Bitcoin and Ether are commodities in this recent lawsuit. The CFTC cites section 1a(9) of the Act, 7 USC §1a(9), and Regulation 180.1, 17 CFR § 180.1 (2022) to support its position.
This development comes just a month after CFTC Chairman Rostin Behnam stated that Ether and stablecoins should be treated as commodities, in contrast to SEC Chairman Gary Gensler’s assertion that all crypto assets, except Bitcoin, are likely to be securities subject to the agency’s oversight.
The ongoing divergence between the CFTC and the SEC’s views on the classification of cryptoassets highlights the persistent lack of consensus among regulatory agencies.
This uncertainty raises questions about how other regulators, such as the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, perceive the asset class.
As the digital asset landscape evolves, regulatory clarity is increasingly critical to ensuring investor protection and fostering responsible growth in the crypto space.
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