Falcon Labs Settles with CFTC

Seychelles-based Falcon Labs settles charges with CFTC for operating as unregistered FCM, facilitating US customers access to digital asset derivatives platforms. They must pay over $1.7 million and cease unauthorized activity.

Falcon Labs, Ltd., a Seychelles-based entity, and the Commodity Futures Trading Commission (CFTC) have settled Falcon Labs, Ltd.’s operation as an unregistered futures commission merchant (FCM) and facilitation of access to digital asset exchanges without appropriate registration.

Falcon Labs is obligated to cease operating as an unregistered FCM, specifically regarding granting US citizens access to trading platforms for digital asset derivatives, as per the terms of the settlement.

Furthermore, Falcon Labs has been mandated to fulfill its disgorgement obligation of $1,179,008 and a civil monetary penalty of $589,504.

Falcon Labs’ extensive cooperation with the CFTC’s Division of Enforcement during the investigation led to a reduction in penalties.

The CFTC’s Director of Enforcement, Ian McGinley, underscored the organization’s unwavering dedication to maintaining trust in derivatives markets, specifically focusing on digital assets. He declared,

“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.”

McGinley emphasized the CFTC’s unwavering commitment to ensuring that all entities, including intermediaries and exchanges, that grant access to digital asset products and services without proper registration are held accountable.

As an intermediary, Falcon Labs facilitated customer trading on multiple digital asset exchanges, including for institutional clients within the United States.

By establishing associated sub-accounts and opening main accounts in its name, the company granted direct access to exchanges, frequently without requiring or requiring customers to provide identifying information.

During this time frame, Falcon Labs accumulated net fees amounting to around $1,179,008 from clients participating in digital asset derivative transactions that the firm facilitated.

Falcon Labs voluntarily strengthened its customer identification controls in response to the CFTC’s complaint against Binance-affiliated entities. This complaint revealed analogous practices involving sub-accounts utilized by customers based in the United States to trade digital asset derivatives.

CFTC is Mostly Having Its Way

A US district judge ruled in favor of the US CFTC’s litigation against Ooki DAO last year, establishing a precedent by ordering the organization to cease operations in the US and pay a civil penalty of $643,542.

As the court’s decision established, DAOs can be held guilty for legal violations, contrary to the belief that their decentralized structure shields them from legal repercussions.

DAOs are entities that function on the foundation of smart contracts and blockchain regulations, facilitating decentralized decision-making in the absence of a centralized governing body.

The US Securities and Exchange Commission served a subpoena on Sushi DAO, another decentralized organization running a cryptocurrency exchange, reflecting broader regulatory trends seen in the Ooki DAO case from the previous year.

The CFTC hopes that this recent landmark settlement will deter other illicit digital asset intermediaries from disclosing their operations as mandated. Declared director Ian McGinley :

“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.”