A case involving virtual currency My Big Coin could determine whether the U.S. Commodity Futures Trading Commission (CFTC) has the power to fight fraud centered around cryptocurrencies.
In January, the CFTC filed the lawsuit in federal court, alleging that a Nevada-based company, its founder, technology entrepreneur Randall Crater, and another individual defrauded more than $6 million from customers seeking to buy My Big Coin.
According to Reuters, lawyers not involved in the suit say that this case could determine CFTC’s oversight of cryptocurrencies, which are not backed by any central bank.
The CFTC pointed to a different case in March, in which a federal judge in Brooklyn ruled that virtual currencies can be regulated by the agency as a commodity. However, Crater’s attorneys argue that the specific ruling involved bitcoin, for which futures are traded.
Crater's legal team contends that the CFTC has no authority over My Big Coin because it is not a commodity or a service that is traded using futures contracts.
“Our argument boils down to the fact that because My Big Coin does not have future contracts or other derivatives trading on it, it is not a commodity,” said Katherine Cooper, a lawyer for Crater.
But Neal Kumar, a lawyer at the law firm Willkie Farr & Gallagher, said Crater may still lose, because the Commodity Exchange Act defines services as commodities that not only currently have future contracts, but could in the future as well.
“The argument that falls flat for them is that there needs to be current or existing futures contracts,” he said. “And that’s just not what the statute says.”
Those watching the case say that if the court decides against the CFTC, it could affect its ability to police virtual currency frauds. To date, the CFTC has filed eight cryptocurrency-related cases.
“It would have a chilling effect on the CFTC’s application of its powers in this area,” said Gregory Kaufman, a lawyer with the law firm Eversheds Sutherland.
U.S. District Judge Rya Zobel in Boston is due to hear arguments in the case on Thursday (June 14).