CFTC v. McDonnell

CFTC v. McDonnell

Opinion

 [*216]  MEMORANDUM & ORDER

Jack B. Weinstein, Senior United States District Judge:

Table of Contents

I. Introduction

A. Commodity Futures Trading Commission ("CFTC") Standing

B. Injunctive Relief

II. Facts

III. Background of Bitcoin and Virtual Currencies

A. Description of Virtual Currencies

B. Expansion and Value

C. Fraud and Crime

D. Regulation and Oversight of Virtual Currency

1. Potential Virtual Currency Regulation

2. Oversight by CFTC

3. Concurrent Oversight from Other Agencies

IV. Law

A. Jurisdiction

B. Standing

1. Enforcement Power of CFTC

a. Virtual Currencies are Commodities

b. Commodity Exchange Act's Definition of "Commodity"

c. CFTC's Interpretation of "Commodity"

d. Derivative Contracts and Futures

e. Regulation of Spot Market Fraud

2. Concurrent Jurisdiction

C. Preliminary Injunction Standard

V. Application of Law

A. CFTC Standing

1. Virtual Currencies as Commodities [**2] 

2. CFTC Jurisdiction Over Virtual Currency Fraud

B. Prima Facie Showing of Fraud Committed by Defendants

C. Preliminary Injunction

D. Appropriate Research by Court

VI. Conclusion

VII. Appendix A Preliminary Injunction

VIII. Appendix B CFTC Primer

IX.Appendix C Congressional Testimony of CFTC Chairman

I. Introduction

The Commodity Futures Trading Commission ("CFTC") sues Patrick McDonnell and his company Coin Drop Markets. CFTC alleges defendants "operated a deceptive and fraudulent virtual currency scheme . . . for purported virtual currency trading advice" and "for virtual currency purchases and trading . . . and simply misappropriated [investor] funds." See CFTC Complaint, ECF No. 1, Jan. 18, 2018, at 1 ("CFTC Compl.").

 [*217]  CFTC seeks injunctive relief, monetary penalties, and restitution of funds received in violation of the Commodity Exchange Act ("CEA"). Id. at 11.

Until Congress clarifies the matter, the CFTC has concurrent authority, along with other state and federal administrative agencies, and civil and criminal courts, over dealings in virtual currency. An important nationally and internationally traded commodity, virtual currency is tendered for payment for debts, although, unlike United States currency, [**3]  it is not legal tender that must be accepted. Title 31 U.S.C. § 5103 ("United States coins and currency . . . are legal tender for all debts . . .").

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