Release Number 8748-23
Federal Court Orders Digital Asset Derivatives Platform and Florida Resident to Pay More than $15 Million for Multiple Violations of the Commodity Exchange Act
Defendant Facilitated Unlawful Futures Transactions, Failed to Register, Attempted to Manipulate the Price of a Native Token
July 12, 2023
Washington, D.C. — The Commodity Futures Trading Commission today announced that on July 5, Judge Roy K. Altman, in the U.S. District Court for the Southern District of Florida, issued a default judgment granting a permanent injunction against Florida resident Adam Todd and four companies he controlled – Digitex LLC, Digitex Limited, Digitex Software Limited, and Blockster Holdings Limited Corporation.
Todd and his companies operated a digital asset exchange under the trade name “Digitex Futures.” Todd and his companies attempted to manipulate the price of the Digitex Futures native token DGTX (a commodity in interstate commerce), illegally offered futures transactions on a platform other than a designated contract market, failed to register with the CFTC, and failed to implement a customer information program, know your customer policies, and anti-money laundering procedures.
The order bans Todd and his companies from trading in any CFTC-regulated markets or registering with the CFTC. It also requires him to pay $3,912,220 in disgorgement and a $11,736,660 civil monetary penalty. The order resolves the CFTC’s enforcement action against Todd and Digitex Futures. [See CFTC Press Release No. 8605-22]
“This order resolves yet another action against an individual and digital asset exchange illegally offering futures contracts to U.S. customers,” said Division of Enforcement Director Ian McGinley. “The order finds that Todd attempted to manipulate Digitex’s native utility token, DGTX, by allegedly ‘pumping’ the token’s price through the use of a computerized bot. This case demonstrates that regardless of the technology used, the CFTC will aggressively use its well-established authority to ensure entities are lawfully registered and to address the manipulation of commodities in interstate commerce.”
The order stems from a September 30, 2022 complaint, which alleged that from approximately May 2020 through May 2022, Todd and Digitex Futures operated a digital asset derivatives exchange from an office in Florida. The Digitex Futures exchange allegedly sought participation from U.S. customers through web-based solicitations, despite the fact Todd knew such participation subjected Digitex Futures to U.S. regulation.
The CFTC charged attempted manipulation of the Digitex Futures Exchange’s native token, DGTX. DGTX was a digital asset, a digital representation of value that functioned as a medium of exchange, and also traded on web-based trading platforms that were accessible to market participants in the United States, including Todd, and therefore was a commodity in interstate commerce.
Between approximately May 2020 and August 2020, Digitex Futures required users to deposit DGTX into their accounts to margin their trading on the futures exchange. According to the complaint, throughout the summer of 2020—the time when the exchange was readying for “launch”—Todd repeatedly attempted to, in his words, “pump” the price of DGTX as reported by third-party exchanges.
Todd allegedly accomplished his “pumping” activity by, among other things, deploying a “bot” on third-party exchanges he designed to be “always buying more than it was selling” and by filling large over-the-counter orders to purchase DGTX on third-party exchanges rather than out of the Digitex Futures “treasury.” The complaint alleged Todd took these steps intending to increase the price of DGTX, as reported by third-party exchanges, even though he acknowledged this practice would result in trading losses because Todd knew the higher DGTX price would benefit the vast amounts of DGTX held by the Digitex “treasury.”
The court ultimately found the CFTC sufficiently pleaded attempted manipulation of a commodity in interstate commerce and other charges.
The CFTC cautions that orders requiring payment of funds to victims may not result in the recovery of any money lost because wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
The CFTC appreciates the assistance of the Australian Securities and Investments Commission, Central Bank of Ireland, Cyprus Securities and Exchange Commission, Gibraltar Financial Services Commission, Seychelles Financial Services Authority, and St. Vincent & the Grenadines Financial Services Authority.
The Division of Enforcement staff responsible for this matter are Ansley Schrimpf, Joseph Patrick, Joseph Platt, Allison Passman, Scott Williamson, and Robert Howell. Former Division of Enforcement staff member Daniel Burstein also assisted with this matter.
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Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the Commodity Exchange Act.