Court Affirms CFTC Jurisdiction Over Cryptocurrency

March 07

As early as September 2015, the CFTC took the position that virtual currencies such as Bitcoin are commodities. See In re Coinflip, Inc., No. 15-29 (C.F.T.C. Sep. 17, 2015). Based on that jurisdiction, in January, the CFTC brought a suit against Patrick K. McDonnell, of Staten Island, New York, and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM). McDonnell brought a motion challenging the jurisdiction of the CFTC.  In a decision yesterday, the district court held that, until Congress clarifies the matter, the CFTC has concurrent authority, along with other state and federal administrative agencies, and civil and criminal courts, over dealings in virtual currency.  The court noted that the Commodity Exchange Act (“CEA”) defines “commodity” as agricultural products and “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;” it held that this definition encompasses virtual currency both in economic function and in the language of the statute.

The court further found that the CFTC made a preliminary prima facie showing that the defendants committed fraud by misappropriation of investors’ funds and misrepresentation through false trading advice and promised future profits.  Thus, the court granted the CFTC’s request for a preliminary injunction that, among other things, required McDonnell and his company to give the CFTC access to their business records and submit to an accounting of their finances.

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David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. He is currently the Chairman of the Litigation Department of the firm’s New York office. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. Since 2008, David has been included in Chambers for his expertise in international arbitration.

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