On March 11, 2019, the U.S. Commodity Futures Trading Commission (CFTC) announced that it had entered into a Consent Order resolving a CFTC action against 1pool Ltd., located in the Marshall Islands, and its chief executive officer and owner, Patrick Brunner, for illegally offering retail commodity transactions that were margined in bitcoin, failing to register as a futures commission merchant (FCM), and failing to meet its supervisory duties by not having the required anti-money laundering procedures in place.
The Order finds that the defendants engaged in unlawful retail commodity transactions in the form of contracts for difference margined in bitcoin with U.S. customers who were not eligible contract participants, acted as an FCM for such U.S. customers by accepting bitcoin as margin for trading without being registered with the Commission, and failed to diligently supervise by failing to implement an adequate know-your-customer and customer identification program. The Order permanently enjoins the defendants from further violations of the Commodity Exchange Act and the CFTC’s regulations as charged.
The Order imposes a civil monetary penalty of $175,000 and requires the disgorgement of $246,000 of gains. The Order also requires the defendants to pay to all known U.S. customers the bitcoin held by defendants in U.S. customers’ accounts and includes the defendants’ certification that they have repaid to U.S. customers approximately 93 bitcoins, valued at approximately $570,000. In total, the defendants are paying a total of $990,000 in resolution of the CFTC action.
Relatedly, at the time the CFTC brought its case, the Securities and Exchange Commission also brought a case against Brunner and 1Pool, alleging that they allowed parties to invest without meeting the discretionary investment thresholds required by the federal securities laws, failed to transact their security-based swaps on a registered national exchange, and failed to properly register as a security-based swaps dealer. The SEC also resolved its case, through a final judgment that required the defendants to pay $53,393 in disgorgement and penalties.