- Regulators in the US, including the CFTC and the DOJ, have slapped KuCoin with several criminal charges.
- A CFTC commissioner has criticized the regulator for its aggressive enforcement action.
- Commissioner Pham shares that the CFTC may infringe on the SEC in its case against KuCoin.
Crypto exchange KuCoin recently landed in hot water, finding itself tangled in a regulatory net cast by the US DOJ and the CFTC, accused of violating money laundering laws and the Bank Secrecy Act, among other operational missteps.
However, in a surprising twist, days after the CFTC dropped its legal bombshell on KuCoin, a commissioner from the agency is questioning whether the regulator is within its authority to charge the crypto exchange.
CFTC is Undermining the SEC in the KuCoin Case
In a statement on Friday, Commissioner Caroline Pham criticized the CFTC’s “aggressive enforcement action” taken against KuCoin, expressing concerns that her agency may be violating the SEC’s authority with its complaint.
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The complaint, filed on Tuesday, classifies KuCoin’s ‘leveraged tokens’ as digital asset commodity derivatives. However, the crypto exchange categorizes these assets as ‘shares’ in the funds it controls. The CFTC alleges that KuCoin violated the Commodity Exchange Act by offering these products without proper registration.
Commissioner Pham argued that the CFTC’s interpretation may exceed its jurisdictional boundaries, citing a lack of clarity in the case:
“This interpretation fails to distinguish between an investment in a fund, which would typically be a security under the jurisdiction of the [Securities and Exchange Commission], and the trading activities of a fund, alleged here to be under the CFTC’s jurisdiction,” Pham wrote.
If the leveraged tokens are securities, as the commissioner suggested, their regulation would fall under the purview of the SEC. Pham expressed concern that the CFTC’s complaint could undermine securities regulators’ ability to oversee the markets.
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“The CFTC’s approach may infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets,” Pham wrote. “Owning shares is not the same thing as trading derivatives.”
While the SEC has targeted other crypto exchanges, including Binance and Coinbase, it has yet to file legal action against KuCoin, at least publicly.
On the Flipside
- The DOJ asserts that KuCoin’s founders are “at large.”
- In December 2023, KuCoin agreed to settle charges from New York Attorney General Letitia James’ office for $22 million for allegedly operating an unregistered exchange.
Why This Matters
KuCoin is one of the largest crypto exchanges in the world. The criminal charges leveled against the platform are bound to hurt its image. The commissioner’s criticism of their agency could introduce a layer of complexity to the case.
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