The Commodity Futures Trading Commission (CFTC) has issued an order simultaneously filing and settling charges against bZeroX, LLC and its founders Tom Bean and Kyle Kistner for illegally offering leveraged and margined retail commodity transactions in digital assets; engaging in activities only registered futures commission merchants can perform; and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program.
Bean and Kistner, through bZeroX, allegedly engaged in these activities in connection with a decentralized blockchain-based software protocol that functioned similarly to a trading platform. The order requires the respondents to pay a $250,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
Simultaneously, the CFTC filed a federal civil enforcement action in the U.S. District Court for the Northern District of California charging the Ooki DAO—a decentralized autonomous organization and successor to bZeroX that operated the same software protocol as bZeroX—with violating the same laws. The CFTC seeks restitution, disgorgement, civil monetary penalties, trading and registration bans and injunctions against further violations of the CEA and CFTC regulations.
“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,” CFTC Chairman Rostin Behnam said in a press release. “I commend our dedicated enforcement team for pursuing this scheme which touches on many areas of concern regarding this growing market.”
“These actions are part of the CFTC’s broader efforts to protect U.S. customers in a rapidly evolving decentralized finance environment,” Acting Director of Enforcement Gretchen Lowe said. “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.”