Court Slams Crypto Exchange Digitex with $16 Million Fine

A court sitting in the Southern District of Florida has ordered crypto exchange Digitex to pay a $16 million fine for operating an unregistered crypto exchange. The court gave the order on account of charges by the US Commodities and Futures Trading Commission (CFTC).

The CFTC charged the founder of the exchange, Adam Todd for operating the platform without a license and profiting from it between May 2020 and May 2022. The fine comprises $11.7 million in civil monetary penalty and $3.9 million as the return of illicit profit.

“According to the complaint, throughout the summer of 2020—the time when the exchange was readying for ‘launch’—Todd repeatedly attempted to, in his words, ‘pump’ the price of DGTX as reported by a third-party exchange,” CFTC explained.

The commission had charged Todd and his crypto derivatives trading platform in September 2022, alleging that the platform was not registered. It also charged the company with attempting to manipulate the price of the exchange’s native token, DGTX, which the commission considers to be a ‘commodity’ in interstate commerce.

In addition to the fine, the presiding judge, Judge Altman has also banned Todd and four companies he controlled from registering with the CFTC or engaging in any trading activities overseen by the US derivatives regulator.

CFTC Fights Manipulation

The CFTC further accused Digitex of not establishing a customer information program, know-your-customer policies and anti-money laundering procedures. These are required procedures to ensure that money laundering is not perpetrated on crypto exchanges.

According to the CFTC, the commission will fight any trading platform that does not have such measures in place, no matter the technology the platform uses, referring to cryptocurrencies.

“This case demonstrates that regardless of the technology used, the CFTC will aggressively use its well-established authority to ensure entities are lawfully registered and to address the manipulation of commodities in interstate commerce,” noted Ian McGinley, Director of CFTC’s Division of Enforcement.

Meanwhile, the Securities and Exchange Commission (SEC) in the US also recently fined blockchain-based file-sharing and payment network, LBRY the sum of $111,614 in civil penalty for operating without registration. LBRY has been in court since 2021 on allegations of running an unauthorized platform and offering unregistered securities.

“In November 2022, the court granted summary judgment in favor of the SEC, holding that LBRY offered and sold LBC in violation of Section 5 of the Securities Act of 1933, the registration provisions of the federal securities laws,” SEC explained in the statement. “The court rejected LBRY’s claim that it lacked fair notice of the application of those laws to its offer and sale.”

The Crypto Crackdown

These actions may be part of the recent crackdown on cryptocurrencies in the United States, which have had Binance and Coinbase in court for weeks now. Meanwhile, the crypto industry is fighting back, with Coinbase and Bittrex filing for dismissal of the cases against it.

The SEC has charged all these crypto exchanges with operating unregistered security exchanges and also trading in unregistered securities. The commission claims that all cryptocurrencies other than Bitcoin are securities and must be registered with the commission and traded on registered securities exchanges as well.

Coinbase had earlier filed a suit in which it demanded that the SEC come forth with clear regulations for the industry.

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