An unregistered offshore crypto firm settled allegations from the U.S. Commodity Futures Trading Commission (CFTC) that it illegally facilitated access to crypto derivatives trading on platforms, such as Binance, that had pledged to stop dealing with U.S. investors.
The regulator issued an order settling charges against a Seychelles-based firm, Falcon Labs Ltd., that alleged it failed to register as a futures commission merchant when it facilitated trading for U.S. customers on offshore digital asset exchanges.
According to the order, Falcon Labs provided clients with direct access to crypto trading exchanges by creating a main account with these platforms in its own name and then adding various sub-accounts for its clients to use.
“The exchanges generally did not require, and Falcon Labs generally did not provide, customer-identifying information for the sub-account holders,” the CFTC said.
The regulator noted that this represented its first action against a firm for inappropriately facilitating access to crypto trading platforms.
“The CFTC’s enforcement program has made clear it will not tolerate digital asset exchanges that fail to register with the CFTC or comply with the agency’s rules that maintain integrity in the derivatives markets,” said Ian McGinley, director of enforcement with the CFTC, in a release.
“And now, the CFTC is taking the fight one step further by, for the first time, charging an intermediary that inappropriately facilitated access to those exchanges,” he said. “Today’s action highlights that the CFTC will not hesitate to charge any entities — exchanges or intermediaries — who are providing customers access to digital asset products and services that require registration but have failed to appropriately register.”
As part of the settlement, Falcon Labs is ordered to cease and desist, and pay US$1.18 million in disgorgement and a US$589,504 civil penalty.
The CFTC said the penalty imposed in the case reflects the firm’s “substantial cooperation” with CFTC enforcement.
It also noted that Falcon Labs voluntarily improved its controls for identifying its customers in the wake of the CFTC’s charges against Binance Holdings Ltd., which included allegations that prime brokers provided access to the platform through “sub-accounts” created by intermediaries.
“In recognizing Falcon Labs substantial cooperation and remediation in this order in the form of a lower penalty, the CFTC hopes to encourage other digital asset intermediaries operating illegally to come forward and report their activities to the agency,” McGinley said.