The Commodity Futures Trading Commission (CFTC) has settled charges with crypto prime broker firm Falcon Labs, Ltd for failing to register as a futures commission merchant (FCM) with the Commission.

According to the order, Falcon Labs was found to have solicited or accepted orders for digital asset derivatives from US customers between October 2021 to at least March 27, 2023.

During the period, the company acted as an intermediary to provide individual and institutional customer direct access to trading on various digital asset exchanges. In many cases, the exchanges didn’t require customer-identifying information for the sub-account holders, nor did the company provide it.

Falcon Labs earned approximately $1,179,008 from net fees by this service.

“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.

“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. 

Cease and desist, and fine

Falcon Labs, which operates under the laws of the Seychelles, was ordered to cease and desist from acting as an unregistered FCM by providing US customers access to digital asset derivatives trading platforms. It was also required to pay $1,179,008 in disgorgement and a $589,504 civil monetary penalty. The civil monetary penalty was reduced due to the company’s “substantial cooperation” with the CFTC’s Division of Enforcement.

“In recognizing Falcon Labs substantial cooperation and remediation in this order in the form of a lower penalty, the CFTC hopes to encourage other digital asset intermediaries operating illegally to come forward and report their activities to the agency,” McGinley continued.   

“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. 

Ian McGinley, Director of Enforcement, CFTC

The company has also voluntarily improved its controls for identifying location of its customers after the earlier similar filed complaint against Changpeng Zhao and the Binance entities.

This is the first CFTC action against an unregistered FCM that inappropriately enabled access to digital asset exchanges.