Falcon Labs reaches a settlement with the CFTC in a groundbreaking case concerning its unregistered status
The Commodity Futures Trading Commission (CFTC) has reached a settlement with Falcon Labs, Ltd., a Seychelles-based entity, regarding its unauthorized operation as a futures commission merchant (FCM) and facilitating access to digital asset exchanges without proper registration. Under the terms of the settlement, Falcon Labs is required to cease all unregistered FCM activities, particularly those involving US individuals and digital asset derivative trading platforms. Additionally, the company must pay a penalty of $1,179,008 in disgorgement and a civil monetary penalty of $589,504.The reduced penalty reflects Falcon Labs’ significant cooperation with the CFTC’s Division of Enforcement during the investigation. Ian McGinley, the CFTC’s Director of Enforcement, emphasized the agency’s unwavering commitment to upholding integrity in derivatives markets, specifically within the digital asset sphere. He stressed the CFTC’s determination to hold accountable any entity, be it an exchange or intermediary, that provides access to digital asset products and services without appropriate registration.Falcon Labs served as an intermediary, facilitating customer trading on various digital asset exchanges, including institutional clients within the US. The company established main accounts in its own name and associated sub-accounts for customers, often bypassing the requirement for or collection of customer-identifying information. During its involvement, Falcon Labs earned net fees of approximately $1,179,008 from customers engaged in digital asset derivative transactions intermediated by the company.The settlement follows a similar case last year when a US district judge ruled in favour of the CFTC against Ooki DAO, ordering the decentralized organization to pay a civil penalty of $643,542 and cease operations in the US. This ruling established the legal accountability of DAOs, challenging the previous perception of their decentralized structure as a shield from legal repercussions.DAOs operate based on blockchain protocols and smart contracts, enabling decentralized decision-making without a central authority. The legal scrutiny of Ooki DAO has resonated with other regulatory initiatives, as evidenced by the SEC’s subpoena of Sushi DAO, another decentralized organization behind a crypto exchange.With this recent settlement, the CFTC aims to encourage other unlawfully operating digital asset intermediaries to voluntarily register and disclose their activities. Director Ian McGinley stated that the settlement sends a message to the industry, urging compliance with regulatory requirements and fostering greater transparency in the digital asset space.
