On September 26, 2018, a federal judge for the U.S. District Court Massachusetts district denied defendant virtual currencies issuer’s challenge to a Commodity Futures Trading Commission (“CFTC”) lawsuit by holding, among other things, that the CFTC adequately alleged that the defendants’ underlying virtual currency was a “commodity” and thus subject to the Commodities Exchange Act (“CEA”). This decision suggests that the CFTC could successfully start a lawsuit for CEA violations against issuers of virtual currencies since this case broadly interprets the CEA’s definition of a commodity.
In CFTC v. My Big Coin Pay, Inc., 18-cv-10077 (RWZ) (D. Mass), defendants moved to dismiss the CFTC’s lawsuit by arguing that the “My Big Coin” token – a virtual currency allegedly at the heart of the defendants’ fraudulent initial coin offering (“ICO”) – was not a commodity and thus the CFTC could not sue under the CEA.
Defendants unpersuasively argued that since there was no present futures markets for My Big Coin, My Big Coin failed to meet the definition of being a commodity, even though the CEA’s definition of a commodity includes “all other goods and articles…and all services, rights, and interest...in which contracts for future delivery are presently or in the future dealt in”(emphasis added).
The CFTC argued that the CEA’s definition of commodity is broader than defendants’ interpretation and the definition is not limited to “any particular type or brand of that commodity.” In support of its argument, the CFTC cited the most popular brand of virtual currency – Bitcoin – and the existence of a futures market for Bitcoin therefore My Big Coin as an alternate brand of virtual currency is a commodity, like Bitcoin.
The court rejected defendants’ position that My Big Coin was not a commodity under the CEA and allowed the CFTC’s lawsuit to proceed. So what does this all mean?
The defendants’ burden for showing My Big Coin was not a commodity under the CEA at this early stage of the lawsuit is much higher than the CFTC’s burden. This court hasn’t affirmatively concluded that My Big Coin is a commodity or that all virtual currencies are commodities – the court has merely stated that defendants had not shown that My Big Coin was not a commodity under the CEA. For those of us following the legal developments concerning virtual currencies, the My Big Coin Pay decision has only confirmed that the virtual currencies, without certain factual evidence, can be alleged to be a commodity subject to the CEA.