Statement of Commissioner Kristin N. Johnson Regarding Unregistered Crypto Futures Platform, Price Manipulation, and Failure to Comply with AML/KYC/CIP Obligations
October 03, 2022
The Commodity Futures Trading Commission (CFTC) today filed a complaint in the U.S. District Court for the Southern District of Florida charging Adam Todd and companies he controls (Digitex LLC, Digitex Limited, Digitex Software Limited, and Blockster Holdings Limited Corporation, collectively d/b/a Digitex Futures) with illegally offering digital asset futures, including bitcoin and ether futures, failing to register as a futures commission merchant (FCM) and comply with the Bank Secrecy Act, and manipulating and attempting to manipulate a digital asset token (DGTX) issued by Digitex Futures.
Todd created a platform for trading digital asset derivatives (the Exchange) through Digitex Futures. Digitex Futures permitted users to trade digital asset derivatives on margin, with leverage up to 100:1, meaning that customers could trade a contract with a notional value of $100 dollars while only putting up $1 in collateral.
Section 4(a) of the Commodity Exchange Act (CEA) prohibits offering, executing, or confirming the execution of contracts for the purchase or sale of a commodity for future delivery, unless the transaction is conducted on a designated contract market.
Soliciting and accepting customer orders for these contracts without first registering with the Commission caused Digitex Futures to run afoul of the requirement to register with the CFTC as an FCM, and to comply with the Bank Secrecy Act (BSA) by implementing know-your-client (KYC) procedures and a customer information program (CIP). KYC procedures and a CIP are key requirements of the BSA that allow an FCM to identify those transacting through the broker—a vital element in preserving the integrity of our financial system. By allowing customers to open accounts with only an anonymous email addresses and passwords and without requiring any additional identify verification, Digitex Futures undermined necessary efforts to detect and prevent money laundering and other conduct that may violate the BSA.
In addition, the Exchange required users to margin their trading activity using a token created by Digitex Futures, DGTX. According to the Complaint, Todd attempted to manipulate the price of DGTX by engaging in non-economic trading activity with the intent to artificially inflate (or pump) the price of DGTX for his financial gain.
The mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. In carrying out this mission, Congress authorizes the CFTC to promote responsible innovation and fair competition in our marketsIn the absence of registering with the CFTC and by failing to comply with appropriate identify verification regulations, Defendants undermined the CFTC’s ability to carry out its regulatory mission.
I would like to recognize the Division of Enforcement staff who worked on this matter: Ansley Schrimpf, Joseph Platt, Joseph Patrick, Allison Passman, Scott R. Williamson, and Robert T. Howell.
 7 U.S.C. § 6(a).