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The U.S. Securities and Exchange Commission is delegating securities enforcement related to cryptocurrency to the CFTC. While the commission moves swiftly ahead of Congress to establish comprehensive federal crypto regulations through litigation, the CFTC is addressing more straightforward violations.
Late last week, the Commodity Futures Trading Commission took the initiative and filed securities fraud charges against a cryptocurrency firm based in Florida. These charges were submitted to the U.S. District Court for the Middle District of Florida.
CFTC Charges Florida Residents for Crypto Scam
The CFTC accused four individuals across three states and their unregistered entity “Fundsz” of securities fraud on Friday:
“The complaint alleges that they engaged in fraudulent solicitation from clients to supposedly trade in cryptocurrencies and precious metals.”
The commission’s Director of Enforcement, Ian McGinley, stated:
“The CFTC remains committed to identifying individuals who deceive customers in the cryptocurrency and precious metals sectors.”
However, the allegations against the defendants in this case fall under the jurisdiction of the SEC, as indicated by the Howey test in the recent Ripple court ruling.
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Commodity Futures Taking on SEC’s Role
This situation resembles the legal troubles faced by FTX founder Sam Bankman-Fried. It’s not that the defendants were selling counterfeit items while claiming they were genuine; rather, they were selling genuine items while asserting they were merely excellent counterfeits.
However, it becomes problematic when individuals lose their funds on something they believed to be less risky during a 75% decline in Bitcoin prices.
These are straightforward allegations of selling unregistered and unregulated securities. This is precisely the type of issue the SEC could effectively address.
McGinley cautions crypto investors looking for online brokerages and crypto exchanges:
“Although the products that fraudsters claim to trade and their methods of luring victims—in this instance through social media—may have evolved, the old saying ‘if something sounds too good to be true, it probably is’ remains as relevant as ever.”
This advice is equally applicable whether considering a rare baseball card purchase or an investment in a high-flying stock.
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