The U.S. Commodity Futures Trading Commission (CFTC) announced that it has filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging Mek Global Limited, PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited (operating collectively as KuCoin, a centralized digital asset exchange) with multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The complaint alleges that KuCoin engaged in illegal off-exchange commodity futures trading and leveraged, margined, or financed retail commodity transactions; solicited and accepted orders for commodity futures, swaps, and leveraged, margined, or financed retail commodity transactions without being registered with the CFTC as a futures commission merchant (FCM); failed to diligently supervise its FCM activities; operated as a swap execution facility (SEF) or designated contract market (DCM) without being registered with the CFTC; and failed to implement an effective customer identification program (CIP).

In its ongoing litigation against KuCoin, the CFTC seeks civil monetary penalties, disgorgement, permanent trading and registration bans, and permanent injunctions against further violations of the CEA and CFTC regulations.

According to the complaint, KuCoin provided and executed large-scale commodity derivatives to U.S. persons from July 2019 to June 2023, as well as provided leverage, margin, or financing for commodity trading, without conducting necessary Know Your Customer (KYC) compliance procedures. The complaint also alleges that although KuCoin claimed to have implemented KYC procedures, these procedures were false and did not prevent U.S. customers from trading commodity interests and derivatives on the platform.

The complaint further alleges that individuals claiming to be U.S. customers were allowed to engage in commodity futures, swaps, and leveraged, margined, or financed commodity transactions on the exchange, in violation of the Commodity Exchange Act and CFTC regulations. KuCoin did not implement any IP address restrictions during the relevant period to prevent U.S. customers from trading commodity interests, nor did it provide explanations regarding common technologies (such as Virtual Private Networks) that could circumvent IP address restrictions.

In a separate criminal matter, the U.S. Attorney's Office for the Southern District of New York has brought charges against PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited, alleging violations of the Bank Secrecy Act, operating an unlicensed money transmitting business, and conspiring to violate the Bank Secrecy Act and operate an unlicensed money transmitting business.