Falcon Labs Settles CFTC Charges for $1.7 Million Over Unregistered Crypto Trading

The Commodity Futures Trading Commission (CFTC) has settled charges against Falcon Labs Ltd., a Seychelles-based crypto brokerage firm, for operating as an unregistered futures commission merchant (FCM) and facilitating access to digital asset exchanges without proper registration. Falcon Labs has agreed to pay a total of $1,768,512 in penalties, comprising $1,179,008 in disgorgement and a $589,504 civil monetary penalty.

Why this matters: This settlement highlights the CFTC's increasing scrutiny of cryptocurrency exchanges and intermediaries, and its efforts to ensure compliance with regulations in the digital asset space. The enforcement action also underscores the importance of proper registration and adherence to rules for companies operating in the derivatives markets, particularly in the rapidly evolvingcrypto, prime, firm, settles, registration, violat industry.

According to the CFTC order, Falcon Labs solicited or accepted orders for digital asset derivatives from US customers between October 2021 and March 27, 2023, without registering as an FCM. The company functioned as an intermediary, facilitating customer trading on various digital asset exchanges, including Binance, and collected net fees of approximately $1,179,008 from customers engaging in digital asset derivative transactions.

The settlement marks the CFTC's first action against an unregistered FCM in the digital asset space. CFTC Director of Enforcement Ian McGinley stated, "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." He added, "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."

The reduced civil monetary penalty reflects Falcon Labs' substantial cooperation with the CFTC's Division of Enforcement throughout the investigative process. McGinley noted, "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."

The Falcon Labs settlement is part of the CFTC's ongoing efforts to uphold integrity in derivatives markets, particularly in the digital asset space. In 2023, the CFTC filed a complaint against Binance Holdings Limited and its affiliates, which was later settled. Following the Binance complaint, Falcon Labs voluntarily improved its controls for identifying customer locations and updated its know-your-customer policies.

As part of the settlement, Falcon Labs is ordered to cease and desist from acting as an unregistered FCM and facilitating US individuals' access to digital asset derivatives trading platforms. The CFTC urges the public to verify a company's registration before committing funds and to report any suspicious activities or information to the Division of Enforcement.

Key Takeaways

• Falcon Labs settles with CFTC for $1.77M over unregistered FCM operation.
• Firm facilitated US customers' access to digital asset derivatives without registration.
• CFTC's first action against an unregistered FCM in the digital asset space.
• Falcon Labs to cease and desist from acting as unregistered FCM.
• CFTC urges public to verify company registration before committing funds.