Breaking: CFTC Fines Falcon Labs for Unregistered Digital Asset Services
Highlights
- CFTC fines Falcon Labs $1.77M for unregistered digital asset services, marking first action against such an intermediary.
- Falcon Labs ordered to cease unregistered FCM activities, pay $1.179M disgorgement, and $589K penalty after CFTC investigation.
- From 2021-2023, Falcon Labs earned $1.179M facilitating unregistered digital asset trades for U.S. customers, now faces strict CFTC penalties.
The Commodity Futures Trading Commission (CFTC) has issued an order of filing and settling charges against Falcon Labs, Ltd., a Seychelles-based company, for not being a futures commission merchant (FCM) which is a violation of the law.
This action is the first time that the CFTC has charged an unregistered FCM for helping people to access digital asset exchanges. The company is now prohibited from carrying out unregistered FCM activities and is to pay huge financial penalties.
Falcon Labs Unregistered Activities and Penalties
Falcon Labs was caught in soliciting and accepting orders for digital asset derivatives from U. S. customers between October 2021 and March 2023. Being a middleman, the company allowed customers to trade on different digital asset exchanges without the need to give customer-identifying information by creating main accounts and sub-accounts. Such an arrangement made it possible for Falcon Labs to operate without the mandatory FCM registration.
Consequently, the CFTC’s order compels Falcon Labs to terminate its unregistered activities and pay financial penalties. As a result, the company is required to pay $1,179,008 in disgorgement and $589,504 in civil monetary penalty.
The reduced penalty is due to Falcon Labs’s fully cooperating with the CFTC’s Division of Enforcement. Ian McGinley, the Director of Enforcement, said that the CFTC will maintain market integrity and charge any entities, whether exchanges or intermediaries, that provide unregistered digital asset services.
CFTC Enforcement and Cooperation
The CFTC’s enforcement action against Falcon Labs is part of its general policy to regulate the digital asset markets. The Commission’s decision to charge an intermediary is a great step in its continuous struggle to enforce the registration requirements. The CFTC expects that Falcon Labs’ cooperation and remediation will inspire other non-compliant digital asset intermediaries to come forward.
From October 2021 to March 2023, Falcon Labs obtained a net fee of $1,179,008 from customers who traded digital asset derivatives. Following the CFTC’s complaint against Binance and other related entities for the same reasons, Falcon Labs voluntarily improved its controls for determining customer locations. This proactive action was taken into account in the reduced monetary penalty.
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