Crypto Firm Falcon Labs Settles ‘Unregistered Activities’ Case With CFTC For $1.7M

The Commodity Futures Trading Commission (CFTC) has taken action against crypto brokerage firm Falcon Labs, a company based in the Seychelles, for failing to register as a futures commission merchant (FCM) in the US. 

Interestingly, this marks the CFTC’s first enforcement action against an unregistered futures commission merchant involved in providing “unauthorized access” to crypto exchanges.

Falcon Labs Faces CFTC Crypto Crackdown

Under the CFTC order, Falcon Labs is required to immediately cease acting as an unregistered FCM, specifically by facilitating US individuals’ access to digital asset derivatives trading platforms. 

In addition, Falcon Labs was ordered to pay a disgorgement of $1.7 million and a civil penalty of $589,000, the latter in recognition of the company’s cooperation with the CFTC’s Division of Enforcement, as described in the order.

Ian McGinley, the Director of Enforcement at the CFTC, emphasized the agency’s commitment to maintaining integrity in the derivatives markets and ensuring compliance with registration requirements. He 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,” said Director of Enforcement Ian McGinley. And now the CFTC is taking the fight one step further by, for the first time, charging an intermediary that inappropriately facilitated access to those exchanges. 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. 

‘Unregistered Activities’ In Crypto Derivatives Market

The CFTC’s order reveals that from around October 2021 through at least March 27, 2023, Falcon Labs solicited and accepted orders for digital asset derivatives from US-based customers. 

Acting as an intermediary, Falcon Labs facilitated customer trading on various digital asset exchanges, including institutional customers in the United States.

According to the CFTC, Falcon Labs provided direct exchange access by creating a main account in its name and associated sub-accounts. Notably, the sub-account holders’ customer-identifying information was generally not required by the exchanges, nor provided by Falcon Labs.

During the period in question, Falcon Labs collected net fees totaling approximately $1.1M from customers engaging in crypto-derivative transactions facilitated by the company. 

Following the CFTC’s complaint against Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, and Samuel Lim in 2023, Falcon Labs reportedly increased its controls for identifying customer locations.

Featured image from Shutterstock, chart from TradingView.com