In the latest action against misconduct in the cryptocurrency industry, the U.S. Commodity Futures Trading Commission (CFTC) has reached a settlement with FalconX, a cryptocurrency brokerage firm unregistered as a futures commission merchant (FCM), imposing a fine of $1.8 million. Additionally, the platform has received an order to cease providing services to U.S. residents.

CFTC Cracks Down on FalconX

Operated by Falcon Labs, a company registered in Seychelles, FalconX is the subject of the first-ever enforcement action against an unregistered FCM for "improperly facilitating access to digital asset exchanges." Of the total settlement amount, $1.18 million will be reclaimed as disgorgement, representing fees collected by the platform, while the remaining $589,504 will be paid as civil penalties.

From around October 2021 to at least the end of March 2023, FalconX acted as an intermediary, directly accessing multiple exchanges and facilitating cryptocurrency trades. Clients on the platform, including institutional clients from the U.S., initially created primary accounts in their own names and then associated sub-accounts on cryptocurrency exchanges.

According to the CFTC, neither the cryptocurrency exchanges required customer identification information for sub-account holders, nor did FalconX provide such information.

"Ian McGinley, the Director of Enforcement at the CFTC, stated, "The CFTC's enforcement program has made it clear that it will not tolerate digital asset exchanges that are not registered with the CFTC or do not comply with its rules," "By bringing charges against intermediaries improperly facilitating access to these exchanges for the first time, the agency is advancing its fight further."

Rewards of Cooperation

Regulatory authorities further noted that FalconX cooperated in the investigation, leading to a reduction in fines. A similar outcome of cooperation with authorities was also reflected in the sentencing of Zhao Changpeng of Binance, who cooperated in the investigation and was sentenced to only four months in prison.

"Today's action underscores the CFTC's willingness to bring charges against any entity—whether an exchange or an intermediary—that provides access to digital asset products and services to customers without appropriate registration," McGinley added.