The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against Falcon Labs, Ltd., an entity organized under the laws of the Seychelles, for failing to register with the CFTC as a futures commission merchant (FCM), as required. This marks the CFTC's first action against an unregistered FCM that inappropriately facilitated access to digital asset exchanges.
Falcon Labs is ordered to cease and desist from acting as an unregistered FCM by providing U.S. persons access to digital asset derivatives trading platforms. The order also requires Falcon Labs to pay $1,179,008 in disgorgement and a $589,504 civil monetary penalty. The reduced civil monetary penalty reflects Falcon Labs’ substantial cooperation with the CFTC’s Division of Enforcement, as detailed in the order.
“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,” said Director of Enforcement Ian McGinley.
“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. Today’s action highlights that the CFTC will not hesitate to charge any entities—exchanges or intermediaries—who are providing customers access to digital asset products and services that require registration but have failed to appropriately register.
“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.”
Case Background
The order finds from approximately October 2021 through at least March 27, 2023, Falcon Labs solicited or accepted orders for digital asset derivatives from customers located in the U.S. Throughout this period, Falcon Labs functioned as an intermediary facilitating customer trading on various digital asset exchanges, including institutional customers located in the U.S. Falcon Labs provided its customers with direct access to exchanges by first creating a main account in its own name and then creating associated sub-accounts. The exchanges generally did not require, and Falcon Labs generally did not provide, customer-identifying information for the sub-account holders.
The order finds Falcon Labs collected net fees of approximately $1,179,008 from customers entering into digital asset derivative transactions intermediated by Falcon Labs. As recognized in the order, Falcon Labs voluntarily improved its controls for identifying the location of its customers after the CFTC filed its complaint against Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited and Samuel Lim, which alleged in relevant part that prime brokers opened “sub-accounts” through which U.S.-located customers traded digital asset derivatives on the Binance platform. [See CFTC Press Release No. 8680-23]
The Division of Enforcement staff responsible for this matter are Candy Haan, Joseph Platt, Joseph Patrick, Elizabeth N. Pendleton, Scott Williamson, and Robert T. Howell.
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The CFTC strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.
Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
