September 27, 2018

CFTC Charges Trading Platform with Illegal Transactions Margined in Bitcoin, Failing to Implement Procedures to Prevent Money-Laundering, and Failing to Register with the CFTC

Washington, DC – The Commodity Futures Trading Commission (CFTC) today filed a civil enforcement action in the U.S. District Court for the District of Columbia against Defendants 1pool Ltd. (1pool), and its chief executive officer and owner, Patrick Brunner of Austria.  The CFTC’s Complaint charges the Defendants with engaging in unlawful retail commodity transactions, failing to register as a Futures Commission Merchant (FCM), and supervisory violations for failing to implement procedures to prevent money laundering as required under federal laws and regulations.

CFTC’s Director of Enforcement Comments

James McDonald, CFTC Director of Enforcement, stated:  “This action shows the CFTC’s commitment to ensuring that intermediaries offering transactions within our jurisdiction register with the CFTC and implement policies and procedures necessary to prevent money laundering and other illicit transactions.  These requirements serve to preserve market integrity and protect customers.  This action also reflects the CFTC’s commitment to coordinate closely with our fellow regulators to ensure that we uncover and prosecute the entire scope of any misconduct.”

Summary of Allegations

According to the Complaint, from at least February 2016 through the present, the Defendants offered or engaged in unlawful retail commodity transactions in the form of “contracts for difference” (CFDs) that had as underlying assets commodities such as gold and West Texas Intermediate crude oil.  As explained in the Complaint, a CFD is generally an agreement to exchange the difference in value of an underlying asset between the time at which the CFD trading position is established and the time at which it is terminated.  However, the Complaint alleges, the Defendants did not conduct these transactions on or subject to the rules of any board of trade that has been designated or registered by the CFTC as a contract market, as required by the Commodity Exchange Act (CEA).

The Complaint further alleges that 1pool, through Brunner and its other employees and agents, acted as an FCM by soliciting or accepting orders for retail commodity transactions; acted as a counterparty to these transactions; and in connection with these activities, accepted money, securities, or property (or extended credit in lieu thereof) in the form of bitcoin to margin any resulting trades or contracts that result or may result therefrom.  Despite acting as an FCM, the Defendants failed to register with the Commission as an FCM as required and failed to implement an adequate supervisory system as such registration requires.

Specifically, the Complaint alleges, Defendants failed to diligently supervise by failing to implement an adequate know-your-customer and customer identification program (KYC/CIP).  The Complaint alleges that the Defendants required their customers to provide only a username and email address to open a trading account, and thus lacked adequate KYC/CIP procedures, which are intended to prevent money-laundering and other illicit activity.

In its continuing litigation against Defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the CEA and CFTC Regulations as charged.

The CFTC wishes to thank the U.S. Attorney’s Office for the District of Columbia, the Department of Justice – Computer Crimes and Intellectual Property Section, and the Federal Bureau of Investigation for their assistance in this matter.  The CFTC also wishes to thank the Securities and Exchange Commission.

Salma Mack from the CFTC’s Office of Data and Technology also provided assistance in this matter.

This case is brought in connection with the CFTC Division of Enforcement’s Bank Secrecy Act Task Force, and the CFTC staff members responsible for this action are Harry E. Wedewer, Christopher Giglio, Mary Lutz, Candice Aloisi, Lenel Hickson, and Manal Sultan.

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CFTC’s Bank Secrecy Act Task Force

The CFTC’s Bank Secrecy Act Task Force is a coordinated effort across the Division of Enforcement to identify and charge those who fail to carry out their Bank Secrecy Act (BSA) and anti-money laundering (AML)-related supervisory responsibilities in connection with markets regulated by the CFTC.  Compliance with BSA and AML requirements is crucial for the enforcement work of the CFTC as well as the regulatory and law enforcement efforts of other agencies.

FCMs and Introducing Brokers (IBs), whether registered or required to be registered, have supervisory obligations related to the BSA, including to have and implement suspicious activity reporting (SAR) and know-your-customer/customer identification program (KYC/CIP) procedures.  When an FCM or an IB fails to either have or appropriately implement BSA and AML procedures that FCM or IB has violated CFTC Regulations, and will be held accountable for the violation.

The Task Force, in coordination with other criminal and regulatory authorities as appropriate, focuses on identifying, investigating, and charging instances in which FCMs and IBs fail to comply with their BSA responsibilities by failing to detect and report suspicious conduct, or by failing to develop or implement KYC/CIP procedures and doing business with those engaged in illicit activity.

You can report suspicious activities or information, including potential violations of BSA and AML requirements, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.