CFTC’s authority over cryptocurrency fraud reaffirmed

By Lene Powell, J.D. In reconsidering a March ruling, a federal district court again found that the CFTC had standing to exercise enforcement power in a virtual currency fraud scheme. The “actual delivery exception” did not apply because the transactions were not entered into on a leveraged, margined, or financed basis and the exception did not bar enforcement of commodity fraud under Section 6(c)(1) of the Commodity Exchange Act (CFTC v. McDonnell, July 12, 2018, Weinstein, J.). In March, a district court in the Eastern District of New York entered a preliminary injunction against Patrick McDonnell and his company, CabbageTech, Corp. d/b/a Coin Drop Markets (CDM), prohibiting the defendants from engaging in fraud and requiring them to preserve books and records and provide expedited discovery. The CFTC had charged defendants with fraud and misappropriation in connection with purchases and trading of the virtual currencies Bitcoin and Litecoin. CFTC antifraud…

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