A federal judge said on Wednesday that virtual currencies meet the definition of a commodity and fall within the jurisdiction of the U.S. derivatives regulator, allowing the agency to pursue fraud allegations against My Big Coin Pay Inc.
The closely watched decision by a U.S. District Court should allow the Commodity Futures Trading Commission (CFTC) to continue to police virtual currency frauds, regulation of which has fallen among several different agencies.
Amid a crackdown on virtual currency scams, the U.S. regulator in January sued technology entrepreneur Randall Crater and a company he founded, alleging they perpetrated a $6 million fraud on people who wanted to buy My Big Coin, an obscure virtual currency.
In its lawsuit against Crater and Nevada-based My Big Coin Pay Inc., the CFTC said the defendants misappropriated $6 million from 28 customers they lured by naming their virtual currency to sound like bitcoin and further claiming it was backed by gold.
Crater’s lawyers moved to dismiss the case, arguing that the CFTC had no authority over the virtual currency because it is neither a tangible good nor a service on which future contracts are being traded – the agency’s typical enforcement purview.
U.S. District Judge Rya Zobel in Boston said on Wednesday that My Big Coin did meet the Commodity Exchange Act’s definition of a commodity, because the law defines commodities in broad categories rather than specific types or brands.
Since both My Big Coin and bitcoin can both be broadly categorized as virtual currencies, and bitcoin futures currently trade on U.S. exchanges, by extension the CFTC has oversight of other virtual currencies including My Big Coin, Zobel found.
“That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a ‘commodity’ under the Act,” she wrote in Wednesday’s decision.
Lawyers were watching the decision closely, since a finding in favor of My Big Coin Inc.’s argument to dismiss could have chilled the CFTC’s ability to police virtual currency frauds.
Zobel accepted the CFTC’s allegations, which have yet to be proven at trial, as true for the purpose of determining if it had jurisdiction. The case may now move forward as a result of the ruling.
“We are disappointed in the result,” said Crater’s lawyer Katherine Cooper in an email.
“Now that we are moving past the motion to dismiss phase of the case, we look forward to challenging the CFTC’s ability to prove many of the factual allegations in the complaint. Among those factual allegations are those which speak to the relatedness of bitcoin and My Big Coin and therefore the CFTC’s jurisdiction.”
(Reporting by Michelle Price and Nate Raymond; editing by Alistair Bell and Cynthia Osterman)
Want to stay up to date?
Get the latest insurance news
sent straight to your inbox.