CFTC Launches Enforcement Action Against Company Relating to Binary Options on Forex and Cryptocurrency Pairs

The U.S. Commodity Futures Trading Commission has filed a civil enforcement action against David Gilbert Saffron and Circle Society Corporation, based in Nevada. The CFTC alleges fraudulent solicitation, misappropriation, and registration violations relating to an $11 million binary options scheme Saffron operated through Circle Society.

Earlier this month, the U.S. District Court for the District of Nevada issued an ex parte order freezing assets controlled by the defendants and preserving records.  The court extended the restraining order on October 11, 2019.  A hearing on the Commission’s Motion for Preliminary Injunction is scheduled for October 29, 2019.

According to the CFTC, the complaint charges that from at least December 2017 to the present, the defendants fraudulently solicited and accepted at least $11 million worth of Bitcoin and U.S. dollars from individuals in the United States to trade off-exchange binary options on foreign currencies forex and cryptocurrency pairs.

Saffron allegedly claimed to have pooled more than $100 billion in Bitcoin and said “well-known investors like Mark Cuban” had participated in his trading pools. Additionally, Saffron allegedly said to have a personal portfolio of over $717 million and a company portfolio in excess of $2 billion.

The CFTC states that the defendants fraudulently solicited funds from at least fourteen members of the public to participate in a pool operated by Circle Society. Saffron alleged claimed his trading expertise could guarantee rates of return up to 300%.

Instead of trading with the funds, Saffron “misappropriated funds, including by retaining participants’ funds in Saffron’s personal electronic cryptocurrency wallet and by using funds to pay other participants, in the manner of a Ponzi scheme.”

“Digital assets and other 21st century commodities hold great promise for our economy,” stated CFTC Chairman Heath P. Tarbert. “Fraudulent schemes, like that alleged in this case, not only cheat innocent people out of their hard-earned money, but they threaten to undermine the responsible development of these new and innovative markets.  America must be a leader in this space, and we will only succeed if these markets have integrity.”

The CFTC seeks full restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act and Commission regulations.


[pdf-embedder url=”https://staging-crowdfundinsider.kinsta.cloud/wp-content/uploads/2019/10/CFTC-v.-David-Gilbert-Saffron-and-Circle-Society-9.30.19.pdf” title=”CFTC v. David Gilbert Saffron and Circle Society 9.30.19″]


Report: CFTC Investigating BitMEX, Crypto Trading Platform Allowing 100x Leveraged Trades

The US Commodity Futures and Trade Commission (CFTC) is engaged in a “months-long” investigation of BitMEX, a cryptocurrency exchange that made its mark by enabling retail investors to conduct 100x leveraged trades of bitcoins, Bloomberg reports.

According to “people familiar with the matter,” the CFTC is trying to determine whether BitMEX allowed Americans to trade on its platform without first registering to do so.

The CFTC oversees the trading of commodities such as gold and any derivatives, including gold futures.

Bloomberg notes that no conclusion has yet been reached and that, often, investigations do not lead to formal allegations.

A spokesperson for BitMEX said the company, “as a matter of…policy, does not comment on any media reports about inquiries or investigations by government agencies or regulators and we have no comment on this report.”

BitMEX has been in the media hot seat for two weeks after CEO Arthur Hayes agreed to debate Professor Nouriel Roubini in Taipei at the Asia Blockchain Summit.

According to LinkedIn, before starting BitMEX in 2014, Hayes traded for Citibank and Deutsche bank for just over 5 years.

Roubini is a professor at NYU, a former Senior Economist for International Affairs in the White House’s Council of Economic Advisers and has worked at the International Monetary Fund, the US Federal Reserve, and the World Bank.

He is known for having predicted the 2008 financial crisis.

During the debate, Roubini called Hayes, “…a thug that is a public danger to thousands of small clueless investors who have lost their shirt because of his scam,” adding that BitMEX, “should be prosecuted for fraud and banned fully.”

In the days following the debate, both parties declared victory as observers decamped.

On Tuesday, Roubini launched a second formal attack against BitMEX in the form of an article, “The Great Crypto Heist,” in which he accuses BitMEX of enticing retail investors with dangerous amounts of leverage, of “front running…clients,” of using only IP addresses to conduct KYC/AML, and of processing criminal monies.

According to Bloomberg, Hayes has admitted previously that US traders might be masking their location by using (VPNs) virtual private networks to redirect their communications with the platform.

Roubini also claims Hayes tried to suppress public access to the video of the debate:

In “The Great Crypto Heist,” Roubini claims Hayes made sure to acquire the rights to video footage before the debate:

“(U)nbeknownst to me, he had secured exclusive rights to the video of the event from the conference organizers, and refused for a week to release it in full. Instead, he published cherry-picked “highlights” to create the impression that he performed well. I suppose this is par for the course among crypto scammers, but it is ironic that someone who claims to represent the “resistance” against censorship has become the father of all censors now that his con has been exposed. Finally, shamed in public by his own supporters, he relented and released the video.”

Roubini has also been chipping away at BitMEX’s credibility in other tweets this week:

Hayes, for his part, has countered that Roubini doesn’t understand Bitcoin and the desirable service BitMEX provides, and is simply pumping his career and feeding an unscrupulous media by bashing the sector:

“Due to a lack of analytical rigor behind his criticisms of Bitcoin, Roubini attempted to focus the debate on the business practices of BitMEX…BitMEX provides safe, fast, and liquid ways for those who see the potential of crypto to trade and hedge cryptocurrency vs. fiat risk…He increases his publicity by being hyper-critical of Bitcoin regardless of the actual facts. And that is why the media trots him out whenever they need someone to bash Bitcoin and the cryptocurrency industry.”

As fallout from the debate settled, Hayes emphasized the convenience of BitMEX and denied the veracity of allegations of criminal conduct at Bloomberg:

“BitMEX provides safe, fast, professional and liquid ways for those who see the potential of crypto and to trade and hedge cryptocurrency risk. We continue to monitor all legal and regulatory developments around the world and will comply with all applicable laws and regulations; we reject any allegations of criminality, manipulation or unfair treatment of our customers, who are at the center of everything we do.”

In this video (at about the 8-minute mark), however, Hayes also describes how BitMEX turned itself profitable by offering leverage to “degenerate gamblers, AKA retail investors,” something no other exchange was doing at the time:

“There are people who are offering similar types of products but who are focussing on degenerate gamblers, AKA retail traders in Bitcoin, so why don’t we do the same…so we said, ‘OK, we’re going to create the world’s highest-leveraged Bitcoin-US dollar product and we want to enable anyone who has Bitcoin to trade financial derivatives.”

Several traders recently claimed that leverage -and not increasing demand- is behind recent price rises and volatility in crypto markets.

Dr. Heath P. Tarbert Takes Over at CFTC as Chair

Dr. Heath P. Tarbert was sworn in today as the 14th Chairman of the Commodity Futures Trading Commission (CFTC) replacing J. Christopher Giancarlo.

Tarbert was nominated by President Trump for a term expiring on April 13, 2024.

Tarbert picks up the baton from Giancarlo, a staunch supporter of Fintech innovation, at a crucial time of change in the financial services industry.

Tarbert gave praise to Giancarlo’s tenure:

“Chris deserves great credit for his hard work and service leading the CFTC. Thanks to his efforts, this Commission is positioned better to tackle the challenges we face today and into the future.”

Tarbert added:

“America’s futures, swaps, and options markets are the global standard. Their integrity is essential to the economic security of every American, particularly our farmers and ranchers.  I look forward to working with each Commissioner and the talented staff at the CFTC to ensure our derivatives markets remain vibrant and wrongdoers are held accountable. At its core, the CFTC is a guardian of the American free-enterprise system. Opportunities and threats await us, and we will be ready. Whether it be unfinished business or the unwritten future, now is the time to act, and I intend to hit the ground running.”

Chairman Tarbert most recently served as Assistant Secretary for International Markets and subsequently as acting Under Secretary for International Affairs at the U.S. Department of the Treasury.

Tarbert also served as the G-7/G20 Deputy Finance Minister, a member of the Financial Stability Board, and the co-chair of both the US-EU Financial Regulatory Forum and the US-UK Financial Regulatory Working Group.

Prior to his service at the Treasury Department, Tarbert was head of the bank regulatory practice of Allen & Overy LLP, a global law firm.

CFTC Chair Giancarlo Budget Request References Oversight of Virtual Currencies & Fintech

U.S. Commodity Futures Trading Commission (CFTC) Chair J. Christopher Giancarlo testified before a Senate subcommittee today to review the Fiscal Year 2019 funding requests and budget justifications for the CFTC, alongside U.S. Securities and Exchange Commission Chair Jay Clayton. Giancarlo requested a “modest increase” in his agencies budget that is “necessary to fulfill the CFTC’s statutory mission.”

Within his prepared testimony, Giancarlo referenced Fintech and the oversight of virtual currencies.

Regarding virtual currencies, Giancarlo stated;

“In FY 2018, certain exchanges self-certified several new contracts for futures products for virtual currencies. These innovations impact the regulatory landscape and with this budget request, the Commission will invest more in new technologies and tools that support important surveillance and enforcement efforts.”

Giancarlo mentioned the need to ensure virtual currency products were not susceptible to manipulation and fraud. He also commented on a recent staff advisory regarding exchanges and clearinghouses that provides guidance for virtual currency derivative products

“It clarifies CFTC staff’s priorities and expectations in its review of new virtual currency derivatives to be listed on a designated contract market or swap execution facility, or to be cleared by a DCO. The advisory should help exchanges and clearinghouses effectively and efficiently discharge their statutory and self-regulatory responsibilities, while keeping pace with the unique challenges of emerging virtual currency derivatives.”

In discussing Fintech, Giancarlo referenced the LabCFTC and their coordination with the UK Financial Conduct Authority – recognized as the leading regulator globally when it comes to empowering Fintech innovation.

While his comments were not limited to innovative finance and covered a wide spectrum of issues, his pursuit of managing a 21st century financial services sector was made clear;

“This is the first Fintech innovation arrangement for the CFTC with a non-U.S. counterpart. We believe that by collaborating with the best-in-class FCA Fintech team, the CFTC can contribute to the growing awareness of the critical role of regulators in 21st century digital markets,” said Giancarlo.