Back in late January, the U.S. Commodities Futures Trading Commission (CFTC) filed a lawsuit in Massachusetts federal district court charging cryptocurrency issuer My Big Coin Pay Inc. and several individuals with commodity fraud and misappropriation of $6 million. At that time the judge in the case froze My Big Coin’s (MBC) assets along with those of company founders Randall Crater and Mark Gillespie along with other defendants.

The case goes to trial Thursday in Massachusetts and the defendants are arguing that the CFTC has no authority to regulate cryptocurrencies. Crater’s attorneys argue that the CFTC lacks authority over the company because cryptocurrencies are neither commodities nor a service that is traded using futures contracts.

Reuters cites Neal Kumar, an attorney at Willkie Farr & Gallagher, who explained that MBC may still lose because the Commodity Exchange Act defines services as commodities even if there are no futures contracts associated with them but that such contracts could be created in the future. Kumar said, “The argument that falls flat for [MBC] is that there needs be current or existing futures contracts. And that’s just not what statute says.”

The CFTC in 2015 declared virtual currencies to be a commodity and claimed investigatory power, including the authority to subpoena exchange operators. However the CFTC primarily concerns itself with professional commodity traders trading on spot exchanges, not small retail investors who are the most likely targets of fraudulent cryptocurrency offers. Bitcoin is the only cryptocurrency currently traded on futures markets.

If MBC prevails in court the CFTC’s regulatory authority over cryptocurrencies takes a major hit and may leave the U.S. Securities and Exchange Commission (SEC) as the federal agency with the most authority over cryptocurrencies. Just last week the SEC defined tokens such as those sold in initial coin offerings (ICOs) are securities and may be regulated by the SEC. Coins like bitcoin and MBC are not securities.

Either the CFTC prevails in court (and the inevitable appeals) or the Congress is going to have to give the SEC or  the CFTC some other agency control over cryptocurrencies. In the CFTC’s complaint against MBC the agency alleges:

Defendants fraudulently solicited potential and existing MBC customers throughout the United States by making false and misleading claims and omissions about MBC’s value, usage, and trade status, and that MBC was backed by gold. Defendants also allegedly fraudulently solicited numerous customers in the District of Massachusetts, receiving in excess of $5 million from those customers. … As customers began to raise questions about their MBC accounts, Defendants attempted to conceal their fraud by issuing additional coins to customers and falsely representing that they had secured a deal with another exchange to trade MBC …. Defendants allegedly encouraged customers to refrain from redeeming their MBC holdings until MBC was active on this ‘new’ exchange.

The CFTC has announced eight cryptocurrency-related cases to date.

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