The Commodity Futures Trading Commission announced on Thursday that it has settle charges against bZeroX, LLC and its founders Tom Bean and Kyle Kistner for illegally offering retail commodity transactions in digital assets.
The US regulator further alleged that the company and its founders failed to adopt a customer identification program as part of a Bank Secrecy Act compliance program, as required of registered futures commission merchants (FCM).
The CFTC has imposed a civil monetary penalty a $250,000.
Simultaneously, the regulator has filed a federal civil enforcement action against Ooki DAO, a decentralized autonomous organization and successor to bZeroX. Ooki DAO operated the same software protocol as bZeroX and according to the CFTC, violating the same laws.
The bZx Protocol, designed and used and marketed by the respondents in CFTC’s complaint between June 2019 and August 2021. The blockchain-based software protocol functions like a trading platform, facilitating margined and leveraged retail commodity transactions.
According to the CFTc, this protocol purported to offer users the ability to engage in these transactions in a decentralized environment. The regulator determined these transactions unlawful as they were required to take place on a designated contract market, but they did not.
Additionally, the complaint stated that bZeroX illegally operated as an unregistered FCM.
The regulator’s complaint further details that in August 2021, bZeroX transferred control of the bZx Protocol to the bZx DAO, which was renamed Ooki DAO. The CFTC alleges that Ooki DAO operates the Ooki Protocol (formerly the bZx Protocol) in the same way as bZeroX and thus is continuing to violate the law.
The regulator stated it seeks restitution, disgorgement, civil monetary penalties and trading and registration bans.
Chairman Rostin Behnam, said:
Today’s actions demonstrate the CFTC’s commitment to aggressively pursuing individuals and their operations who purposefully seek to evade regulatory oversight at the expense of retail customers. I commend our dedicated enforcement team for pursuing this scheme which touches on many areas of concern regarding this growing market.
Acting Director of Enforcement Gretchen Lowe, added:
These actions are part of the CFTC’s broader efforts to protect U.S. customers in a rapidly evolving decentralized finance environment. Margined, leveraged, or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to entities with more traditional business structures as well as to DAOs.
