Defendants from a cryptocurrency services company charged with fraud by the CFTC are pushing back against the the agency's assertion that cryptocurrencies are commodities.
In January, the CFTC charged My Big Coin Pay Inc, Randall Crater, Mark Gillespie and other associated parties with fraud and misappropriation of funds, alleging that they swindled more than $6 million from their customers through the sale of My Big Coins.
The CFTC subsequently sent a notice of "supplemental legal authority" to the defendants in March, after a judge in another case affirmed the commission's definition of cryptocurrencies as commodities.
On Tuesday, the defendants, excepting Gillespie, fired back in a filing opposing the CFTC's motion for a preliminary injunction against them. They argue that under the Commodity Exchange Act (CEA) and other regulations, cryptocurrencies only constitute commodities when futures contracts are dealt on them – as with bitcoin, for example.
"While cryptocurrencies on which futures are dealt in are no doubt subject to CEA and CFTC Regulation," the filing reads, "there are no futures on My Big Coin so it is not a commodity as that term is defined in the CEA and CFTC Regulations."
It explains further:
"As a virtual currency, with no physical or tangible existence, My Big Coin (and other virtual currencies) is not a 'good' or an 'article.' Instead, virtual currencies represent a set of 'services, rights and interests.' But, per the plain language of the CEA, intangible 'services, rights and interests' are only included in the CEA's definition of the term 'commodity' if there are futures contracts traded on them. The only virtual currency on which futures contracts are traded is bitcoin."
The defendants' lawyers argue further that the CFTC's January notice of supplemental legal authority misinterpreted the aforementioned judge's decision, and that the judge acknowledged the "futures requirement" in his ruling.
In another notable development, recent filings show that Crater has hired a former senior trial attorney at the CFTC's Enforcement Division, Katherine Cooper.
In March, Cooper penned a blog post for the Blockchain Law Center considering the judge's affirmation of the CFTC's definition of cryptocurrencies as commodities, and outlined an argument similar to that of the defendants' filing.
She conjectured that the court's potentially contradictory definition of a commodity could be the result of it "reasoning that if one virtual currency has a futures contract trading on it, then all other virtual currencies are 'goods ... in which contracts for future delivery are presently or in the future dealt in.'"
She closed her post with a now timely conclusion:
"It remains to be seen then how a court would rule if it had the benefit of a robust, critical analysis of the CFTC's theory proffered on behalf of a defendant."
View the filing below
Statue of justice image via Shutterstock