Commodity Futures Trading Comm'n v. My Big Coin Pay, Inc.
334 F. Supp. 3d 492 (2018)
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Rule of Law:
A virtual currency may be regulated by the Commodity Future Trading Commission (CFTC) as a 'commodity' under the Commodity Exchange Act (CEA) if futures contracts are traded for any virtual currency, not just the specific one at issue. The CEA's definition of 'commodity' is applied categorically, meaning that if an item belongs to a class of goods where futures are traded, the entire class falls under the Act's anti-fraud provisions.
Facts:
- Randall Crater and his associates operated a scheme involving a virtual currency they created called 'My Big Coin' (MBC).
- To entice customers, Crater falsely claimed that MBC was 'backed by gold,' could be used anywhere Mastercard was accepted, and was actively traded on several currency exchanges.
- Crater and his associates fabricated and arbitrarily changed the price of MBC to create the false appearance of a legitimate, actively traded virtual currency.
- After customers purchased MBC, they could view their holdings on a website but were unable to trade their MBC or withdraw their funds.
- Through these misrepresentations, Crater and his associates obtained over $6 million from customers.
Procedural Posture:
- The Commodity Future Trading Commission (CFTC) sued Randall Crater and several Relief Defendants in the U.S. District Court for the District of Massachusetts (a federal trial court).
- The CFTC successfully moved for a temporary restraining order against the defendants.
- Following the temporary restraining order, the defendants consented to a preliminary injunction.
- The CFTC then filed an amended complaint.
- The defendants filed a motion to dismiss the amended complaint for failure to state a claim and for lack of subject matter jurisdiction.
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Issue:
Does a virtual currency, for which no futures contracts are traded, qualify as a 'commodity' under the Commodity Exchange Act's anti-fraud provisions simply because futures contracts are traded for other virtual currencies?
Opinions:
Majority - Rya W. Zobel
Yes. A virtual currency like My Big Coin qualifies as a commodity under the CEA because it belongs to a category of goods—virtual currencies—in which futures contracts are dealt in. The court reasoned that the CEA defines 'commodity' broadly and categorically, not by specific type, brand, or form. Therefore, the requirement that futures be 'dealt in' applies to the general class of an item, not the specific item itself. Drawing an analogy to natural gas cases, the court noted that since futures contracts for Bitcoin exist, the entire class of 'virtual currencies,' including My Big Coin, falls under the CEA's definition. This interpretation aligns with Congress's remedial purpose to regulate the commodity markets flexibly and broadly. The court also rejected the defendant's argument that the CEA's anti-fraud provision is limited to market manipulation, holding that the plain language of the statute also prohibits general fraud and deceptive devices.
Analysis:
This decision represents a significant early expansion of the CFTC's regulatory authority over the cryptocurrency market. By establishing a 'categorical' approach to the definition of 'commodity,' the court empowered the agency to pursue fraud claims involving virtual currencies that are not themselves traded on futures exchanges. This ruling set a key precedent that broadens the reach of federal anti-fraud laws into the digital asset space, signaling that even obscure or fraudulent digital tokens can fall under federal jurisdiction if they belong to a class of assets, like cryptocurrencies, for which a futures market exists.
