The US Commodity Futures Trading Commission (CFTC) has fined Bitfinex, the largest bitcoin exchange, for multiple violations of trading rules revealed by the Commission during an investigation.

Thus, the exchange made it possible for its clients to carry out illicit off-exchange transactions in bitcoin and other cryptocurrencies. Besides, it was not registered as a Futures Commission Merchant (FCM), claims the Commission in a press release. Such a registration is required by the Commodity Exchange Act (CEA). AS a result, the exchange should pay the fee and desist from violating the Act in the future.

According to the Dodd-Frank Act (2010), financed commodity transactions should be conducted on an exchange, unless the entity offering the transaction can provide actual delivery of commodities (for example bitcoins) within 28 days, states the CFTC in an Order issued on 2 June.

However, Bitfinex de-facto retained control over the funds that were supposed to go to clients during marginal trading. Traders could not use these funds.

“The Order finds that from April 2013 to at least February 2016, Bitfinex permitted users to borrow funds from other users… The Order also finds that Bitfinex did not actually deliver those bitcoins to the traders who purchased them. Instead, Bitfinex held the bitcoins in deposit wallets that it owned and controlled.”

The exchange changed its service model twice, in 2013 and in 2015, but has always retained control over private keys to the omnibus settlement wallet. 

At the same time, the exchange cooperated with CFTC and made certain steps to come into compliance with the CEA. When Bitfinex first learned about the possible investigation on 17 September 2015, it offered its collaboration.

It was on 17 September that the Commission first took legal actions against an unregistered bitcoin trading platform and proclaimed that bitcoin was a commodity and, as a result, was covered by the CEA.

After the investigation made by the Commission, Bitfinex offered to pay the necessary fine of $75,000 and introduce the required changes into its methods without confirming or denying the conclusions made by CFTC.

Andrew Levich