Federal Judge Opens Door to CFTC to Regulate Virtual Currency

“Presented are two questions that determine the plaintiff’s standing: (1) whether virtual currency may be regulated by the CFTC as a commodity; and (2) whether the amendments to the CEA under the Dodd-Frank Act permit the CFTC to exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts,” Weinstein said. “Both questions are answered in the affirmative. A ‘commodity’ encompasses virtual currency both in economic function and in the language of the statute.”

Weinstein said the commission’s broad authority “extends to fraud or manipulation in derivatives markets and underlying spot markets.” He also said the commission “may exercise its enforcement power over fraud related to virtual currencies sold in interstate commerce.”

David William Oakland of the CFTC served as lead counsel for the commission. He could not be reached immediately for comment.

McDonnell represented himself. “I’m not at liberty to discuss the case while it’s pending,” he said Tuesday.

The judge included in the order as an appendix the written testimony of CFTC chairman J. Christopher Giancarlo before the U.S. Senate Banking Committee on Feb. 6 in Washington.

“Emerging financial technologies broadly are taking us into a new chapter of economic history. They are impacting trading, markets and the entire financial landscape with far-ranging implications for capital formation and risk transfer,” he said. “We are entering a new digital era in world financial markets. As we saw with the development of the internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response.”

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