F. Dario de Martino, Spencer D. Klein, Julian E. Hammar, and Stephanie N. Ference
Corporate Governance, Derivatives + Commodities, Emerging Companies + Venture Capital, Financial Institutions + Financial Services, Financial Technology, Financial Transactions, Investment Management, Mergers + Acquisitions, and Public Companies Counseling + Compliance
In September 2015, the Commodity Futures Trading Commission (CFTC) stated in a settlement order that “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities” under the Commodity Exchange Act (CEA) and are therefore subject to the CFTC’s anti-fraud and anti-manipulation enforcement authority.
On March 6, 2018, in a first-of-its-kind ruling by a federal court, Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York (EDNY) agreed and upheld the CFTC’s determination that virtual currencies (including those with respect to which no futures contract is offered) are indeed commodities under the CEA. In that regard, the court concluded that virtual currencies “fall well-within” the common definition of “commodity” as well as the CEA’s broad definition of the term commodity, which includes “all other goods and articles . . . and all services, rights, and interests . . . in which contracts for future delivery are presently or in the future dealt in.”
In Commodity Futures Trading Commission v. McDonnell et al., Judge Weinstein granted the CFTC’s request for a preliminary injunction against a company alleged to have offered fraudulent trading and investment services related to virtual currency in violation of the CEA.
In addition to confirming that the term “commodity” encompasses virtual currency “both in economic function and in the language of the statute,” the EDNY court found that the CEA’s statutory delegation of oversight “over ‘contract of sale of any commodity in interstate commerce’ allows the CFTC to enforce its mandate in cases not directly involving future trades.” In that regard, the court cited the CEA’s anti-manipulation and anti-fraud provisions under Section 6(c) and CFTC Regulation 180.1, which prohibit fraudulent and manipulative schemes in connection with “a contract of sale of any commodity in interstate commerce.” Thus, the court ruled that the CFTC had standing to sue defendants on the theory that they have violated the CEA.
In a regulatory environment where, as Judge Weinstein wrote, “Federal agencies may have concurrent or overlapping jurisdiction over a particular issue” (i.e., the CFTC, the Department of Justice (DOJ), the Financial Crimes Enforcement Network, the Federal Trade Commission, the Securities and Exchange Commission (SEC), and the Internal Revenue Service (IRS) may assert jurisdiction over virtual currencies), and “Congress has yet to authorize a system to regulate virtual currency,” this determination provides further clarification of the CFTC’s enforcement authority that may help protect virtual currency investors. The SEC, IRS, DOJ, Treasury Department, and state agencies have increased their regulatory action in the field of virtual currencies without displacing CFTC’s concurrent authority. It remains to be seen, however, whether Congress will act to provide a consistent regulatory framework for virtual currencies.
 See “Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, Making Findings and Imposing Remedial Sanctions” (Sept. 17, 2015), available at http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf.
 7 U.S.C. § 1 et seq.
 See Commodity Futures Trading Comm’n v. McDonnell, No. 1:18-cv-00361-JBW-RLM, slip op. (E.D.N.Y. Mar. 6, 2018) (mem.) available at http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoindroporder030618.pdf.
 Id. at 24; see 7 U.S.C. § 1a(9).
 McDonnell, slip op. at 3.
 7 U.S.C. § 9(1).
 17 C.F.R. § 180.1.
 McDonnell, slip op. at 9.
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