Crypto Firm Falcon Labs Settles ‘Unregistered Activities’ Case With CFTC For $1.7M

The
Commodity
Futures
Trading
Commission
(CFTC)
has
taken
action
against
crypto
brokerage
firm
Falcon
Labs,
a
company
based
in
the
Seychelles,
for
failing
to
register
as
a


futures
commission
merchant

(FCM)
in
the
US. 

Interestingly,
this
marks
the
CFTC’s
first
enforcement
action
against
an
unregistered
futures
commission
merchant
involved
in
providing
“unauthorized
access”
to
crypto
exchanges.

Falcon
Labs
Faces
CFTC
Crypto
Crackdown

Under
the
CFTC
order,
Falcon
Labs
is

required
to
immediately
cease
acting
as
an
unregistered
FCM,
specifically
by
facilitating
US
individuals’
access
to
digital
asset
derivatives
trading
platforms. 

In
addition,
Falcon
Labs
was
ordered
to
pay
a
disgorgement
of
$1.7
million
and
a
civil
penalty
of
$589,000,
the
latter
in
recognition
of
the
company’s
cooperation
with
the
CFTC’s
Division
of
Enforcement,
as
described
in
the
order.

Ian
McGinley,
the
Director
of
Enforcement
at
the
CFTC,
emphasized
the
agency’s
commitment
to
maintaining
integrity
in
the


derivatives
markets

and
ensuring
compliance
with
registration
requirements.
He
stated: 

The
CFTC’s
enforcement
program
has
made
clear
it
will
not
tolerate
digital
asset
exchanges
that
fail
to
register
with
the
CFTC
or
comply
with
the
agency’s
rules
that
maintain
integrity
in
the
derivatives
markets,”
said
Director
of
Enforcement
Ian
McGinley.
And
now
the
CFTC
is
taking
the
fight
one
step
further
by,
for
the
first
time,
charging
an
intermediary
that
inappropriately
facilitated
access
to
those
exchanges.
Today’s
action
highlights
that
the
CFTC
will
not
hesitate
to
charge
any
entities—exchanges
or
intermediaries—who
are
providing
customers
access
to
digital
asset
products
and
services
that
require
registration
but
have
failed
to
appropriately
register. 

‘Unregistered
Activities’
In
Crypto
Derivatives
Market

The
CFTC’s
order
reveals
that
from
around
October
2021
through
at
least
March
27,
2023,
Falcon
Labs
solicited
and
accepted
orders
for


digital
asset

derivatives
from
US-based
customers. 

Acting
as
an
intermediary,
Falcon
Labs
facilitated
customer
trading
on
various
digital
asset
exchanges,
including
institutional
customers
in
the
United
States.

According
to
the
CFTC,
Falcon
Labs
provided
direct
exchange
access
by
creating
a
main
account
in
its
name
and
associated
sub-accounts.
Notably,
the
sub-account
holders’
customer-identifying
information
was
generally
not
required
by
the


exchanges,
nor
provided
by
Falcon
Labs.

During
the
period
in
question,
Falcon
Labs
collected
net
fees
totaling
approximately
$1.1M
from
customers
engaging
in
crypto-derivative
transactions
facilitated
by
the
company. 

Following
the
CFTC’s


complaint

against
Changpeng
Zhao,
Binance
Holdings
Limited,
Binance
Holdings
(IE)
Limited,
Binance
(Services)
Holdings
Limited,
and
Samuel
Lim
in
2023,
Falcon
Labs
reportedly
increased
its
controls
for
identifying
customer
locations.

Featured
image
from
Shutterstock,
chart
from
TradingView.com