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CFTC Brings Enforcement Action against Digital Exchange and Natural Person Controller Suggesting Native Cryptoasset is a Commodity and Not a Security

The Commodity Futures Trading Commission (CFTC) charged a group of companies and their natural person controller with operating an unlicensed futures brokerage company (i.e., a futures commission merchant (“FCM”)); not complying with anti-money laundering requirements applicable to FCMs; and executing and confirming futures transactions on an unlicensed futures exchange.  Additionally, the CFTC alleged that the defendants engaged in attempted manipulation, fraud and deception in connection with transactions in a native cryptocurrency created and utilized by the defendants.  In doing so, the CFTC implied that a little-known digital asset constituted a commodity under the CFTC’s jurisdiction, and not a security under the Securities and Exchange Commission’s (“SEC”) jurisdiction.  

All these charges were contained in a CFTC complaint filed on September 30, 2022, in a federal district court in Florida.

In CFTC v. Adam Todd, Digitex LLC and two other affiliated companies (collectively, “Digitex”) the CFTC claims that from approximately July 31, 2020 through at least May 2022, the defendants accepted customer funds and matched customer orders for bitcoin and ether on a leveraged basis through its proprietary trading platform. Moreover, to facilitate processing of margin requirements, and settlement of gains and losses, Digitex required utilization of DGTX, the native cryptocurrency of the trading platform. According to the CFTC, the defendants sold DGTX to the public directly, as well as listed DGTX on third-party trading platforms. In connection with all customer transactions, Digitex was the counterparty.

The CFTC claims that, through these activities the defendants acted as an FCM without required registration and failed to comply with the anti-money laundering requirements of an FCM. The CFTC also charged that defendants attempted to manipulate and engaged in fraud and deceit when they engaged in certain transactions in over-the-counter markets as well as on third-party trading platforms, that were intended to inflate the price of DGTX to enable the defendants to benefit from artificially higher prices. The CFTC claimed that Mr. Todd possessed “inside information concerning the supply of DGTX and ability to impact the price of DGTX.”

Finally, the CFTC claimed that in executing leveraged margin transactions (which applicable law regards as futures transactions), the defendants violated either of two provisions of applicable law:  (1) engaging in and confirming  transactions on a market that was not licensed by the CFTC as a contract market (Commodity Exchange Act (“CEA”) Section 4(a)) or (2) permitting direct access to its trading platform that was not registered with the CFTC as a foreign board of trade (CEA Section 4(b).

In its complaint, the CFTC endeavors to support its jurisdiction by implying that DGTX tokens were not security tokens (and thus not under the jurisdiction of the SEC), noting that “DGTX tokens did not confer any ownership rights in [Digitex] and did not permit the token holders to participant in any matters concerning the corporate governance of [Digitex].” The CFTC asserted that “DGTX was a …digital representation of value that functioned as a medium of exchange …and therefore was a commodity…” 

"DGTX was a digital asset, a digital representation of value that functioned as a medium of exchange, and also traded on web-based trading platforms that were accessible to market participants in the United States, including Todd, and therefore was a commodity in interstate commerce." CFTC Complaint, par. 37.


©2023 Katten Muchin Rosenman LLPNational Law Review, Volume XII, Number 285

About this Author

Gary DeWaal, Securities Attorney, Katten Law Firm, New York
Special Counsel

Gary DeWaal focuses his practice on financial services regulatory matters. He counsels clients on the application of evolving regulatory requirements to existing businesses and structuring more effective compliance programs, as well as assists in defending and resolving regulatory disciplinary actions and enforcement matters. Gary also advises buy-side and sell-side clients, as well as trading facilities and clearing houses, on the developing laws and regulations related to cryptocurrencies and digital tokens.

Previously, Gary was a senior...


From derivatives products to cryptocurrencies, Dan Davis helps clients navigate ever-changing regulatory requirements. Drawing on his years of experience as General Counsel at the Commodity Futures Trading Commission (CFTC), Dan understands how financial services agencies operate. As an experienced complex civil litigation attorney, Dan can defend clients in any forum.

Regulatory perspective meets business-oriented counsel

Clients trust Dan’s experience to help mitigate risks in the face of investigations and enforcement actions and to assess rules issued by financial...