FalconX Settles With CFTC For $1.8M In Landmark Crypto Case

The United States Commodity Futures Trading Commission (CFTC) has announced it has settled charges against cryptocurrency brokerage firm Falcon Labs (FalconX) for $1.8 million in disgorgements and penalties. 

The CFTC stated that the brokerage firm voluntarily improved its practices after the CFTC filed a civil suit against Binance and former CEO Changpeng Zhao. 

CFTC Settles With FalconX

According to a May 13 notice, the Commodity Futures Trading Commission stated that Falcon Labs, owned by FalconX, failed to register as a futures commission merchant and inappropriately facilitated access to digital asset exchanges. According to the CFTC, Falcon Labs acted as an intermediary, facilitating customers across digital asset exchanges. The CFTC stated that the firm should have registered with it as a futures commissions merchant. The settlement with FalconX requires the company to pay $1.2 million in disgorgement and $600,000 towards civil monetary penalties. It also requires FalconX to stop offering services to residents of the United States. 

Speaking about the CFTC’s enforcement program, Enforcement Director Ian McGinley 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. 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.”

The CFTC added that Monday’s actions represented the first action on digital asset exchanges. 

Falcon Labs Improved Practices After Action Against Binance 

The CFTC revealed that Falcon Labs was trading futures and swaps through sub-accounts on digital asset exchanges, including Binance. The regulator charged Binance and its former CEO Changpeng Zhao in 2023, eventually leading to a settlement. Following the charges against Binance, the firm voluntarily changed how it collected customer information and updated its Know Your Customer (KYC) policies. The stricter data collection method and KYC norms led to FalconX losing half its Edge customers. 

The CFTC stated that, in recognition of Falcon Labs’ substantial cooperation and the lower penalty, it hoped other digital asset intermediaries would come forward and report their activities. 

“In recognizing Falcon Labs’ substantial cooperation and remediation in this order in the form of a lower penalty, the CFTC hopes to encourage other digital asset intermediaries operating illegally to come forward and report their activities to the agency.”

More Enforcement Actions? 

CFTC Chair Rostin Behnam said at the beginning of the month that crypto firms operating in the US could expect another cycle of enforcement action within two years. He added that events in 2022 had caused a market downturn, with several companies declaring bankruptcy. However, he did not specify if the SEC or the CFTC would be behind any enforcement actions. 

“We’re going to probably see in the next 6 to 18 months, or 6 to 24 months, another cycle of enforcement actions because of this cycle of asset appreciation and interest by retail investors. Without a regulatory framework, without that transparency, without those tools that we typically use as regulators, you’re going to continue to see this fraud and manipulation.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.