CFTC imposes a $ 250,000 fine on bZeroX, LLC and its founders and charges successor Ooki DAO for offering illegal over-the-counter digital asset trading, registration violations, and failure to comply with banking secrecy law

– The Commodity Futures Trading Commission today issued a Simultaneous Filing and Settlement Order of Charges against Defendant bZeroX, LLC (bZeroX) and its founders Tom Bean (Bean) e Kyle Kistner (Kistner) (collectively, respondents) for illegally offering leveraged and marginalized retail commodity transactions in digital assets; engage in activities that only Registered Futures Commission Traders (FCMs) can perform; and failure to implement a client identification program as part of a Bank Secrecy Act compliance program, as required by MMFs.

Respondents engaged in these activities in connection with a blockchain-based decentralized software protocol that functioned similarly to a trading platform. The order requires respondents to pay a civil fine of $ 250,000 and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

Simultaneously, the CFTC filed a federal civil enforcement action in the United States District Court for the Northern District of California accusing Ooki DAO—A decentralized autonomous organization and successor to bZeroX that ran the same software protocol as bZeroX – violating the same laws as respondents. The CFTC requests restitution, disgorgement, civil fines, trade and registration bans, and injunctions against further violations of the CEA and CFTC regulations, as charged.

“Today’s actions demonstrate the CFTC’s commitment to aggressively prosecute individuals and their operations who purposely try to evade regulatory scrutiny at the expense of retail clients,” said President Rostin Behnam. “I commend our dedicated law enforcement team for pursuing this pattern which touches many areas of concern related to this growing market.”

“These actions are part of the CFTC’s broader efforts to protect US clients in a rapidly changing decentralized financial environment,” said Gretchen Lowe, acting director of the application. “Trading in digital assets with margin, leverage or financing offered to retail clients in the United States must take place on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures as to DAOs. “

Case background

The order notes and the complaint claims that, from approximately 1 June 2019 to approximately 23 August 2021, respondents designed, distributed, marketed and solicited a blockchain-based software protocol that accepted orders and facilitated retail with margins and leverage commodity transactions (functioning similar to a trading platform). This protocol (the bZx protocol) allowed users to contribute a margin (collateral) to open leveraged positions whose final value was determined by the price difference between two digital assets from the time the position was established to the time the position was established. it has been closed. The bZx protocol purported to offer users the ability to engage in these transactions in a decentralized environment, i.e. without third-party intermediaries taking custody of users’ resources.

These transactions were illegal because they had to take place on a designated contract market, but they did not. Furthermore, by soliciting and accepting orders for and entering into retail merchandise transactions with customers and accepting money or property (or extending credit in lieu of these) to issue a margin of these transactions, bZeroX has been illegally operating as an unregistered FCM. bZeroX also has not adopted a customer identification program as part of a Bank Secrecy Act compliance program, as required by MMFs. Bean and Kistner, who co-founded, co-owned and controlled bZeroX, were held accountable for controlling individuals who knowingly induced the underlying violations or did not act in good faith.

As is clear from the order and as alleged in the complaint, on 23 August 2021 approximately, bZeroX transferred control of the bZx protocol to bZx DAO, which was subsequently renamed and currently operates as Ooki DAO. The Ooki DAO handles the Ooki protocol (formerly bZx protocol) exactly like bZeroX and thus continues to violate the law in the same way as bZeroX. By transferring control to a DAO, the founders of bZeroX touted to members of the bZeroX community that the operations would be application-proof, allowing the Ooki DAO to violate CEA and CFTC regulations with impunity, as stated in the court action. federal. The order notes that the DAO was an unincorporated association in which Bean and Kistner were actively involved and that they were responsible for Ooki DAO’s violations of CEA and CFTC regulations.

The Division of Enforcement personnel responsible for this action are Anthony Biagioli, Lauren Fulks, Yusuf Caper, Thomas Simek, Brittne Snyder, Christopher Reed and Charles Marvine.

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