CFTC charges Digitex exchange

CFTC charges Digitex exchange and CEO who called KYC programs ‘unreasonable’

The U.S. Commodity Futures Trading Commission has filed a complaint against futures exchange Digitex and its CEO Adam Todd, charging them with illegally offering futures transactions. It also charged Todd with attempting to manipulate the price of Digitex’s native token, DGTX.

Filed at the Southern District of Florida, the complaint accuses Digitex of operating a digital asset derivatives exchange from an office in Florida from May 2020 through to May 2022. The exchange allegedly admitted U.S. users despite Todd knowing that this subjected it to US regulation.

Digitex started operations in April 2020 after months of running its beta under which users could only purchase its native DGTX tokens. Just before it launched, it was hit by a data breach in which sensitive data for over 8,000 users was stolen and some of it leaked.

Following the breach, Todd removed all Know Your Customer (KYC) measures at the exchange, claiming they were unnecessary in the first place and only endangered users’ data. In a statement, he claimed that justifying KYC by claiming it would stop money laundering or terrorist financing is “stupid” and “ridiculous.”

“We all know the real reason for KYC. The real reason for KYC is that Big Brother wants to know what everybody’s doing all the time. He wants to know how much you’ve got and what you’re doing with it. I don’t believe they have the right to do that to everybody in the world,” he claimed at the time.

According to the CFTC, not only has Todd breached commodities regulations, but he has also been engaging in market manipulation using various companies he owns. One of the strategies he used was deploying a bot that was “always buying more than it was selling.” He also filled large over-the-counter orders to purchase DGTX on third-party exchanges. The complaint alleges that Todd openly admitted that he knew these practices would result in losses for traders, but benefit Digitex which owned vast amounts of DGTX.

“The CFTC’s action against Adam Todd and Digitex Futures underscores the primacy of the CEA’s core registration provisions that are designed to ensure the structural integrity of our nation’s derivatives markets. Further, the CFTC will vigorously investigate potential manipulative trading activity to ensure confidence in markets remains strong,” commented Gretchen Lowe, the CFTC’s Acting Director of Enforcement.

In an accompanying statement, Commissioner Kristin N. Johnson said that Digitex ran afoul of the Bank Secrecy Act (BSA) by disabling KYC programs for its users. Violating the BSA can land an individual in prison for up to five years and was the key charge that brought down Arthur Hayes and his BitMEX ring.

The CFTC is seeking disgorgement, full restitution, civil monetary penalties and permanent trading and registration bans for Todd.

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