September 30, 2018
by Katherine Cooper

On September 27, 2018, the Commodity Futures Trading Commission sued 1Pool Ltd. and Patrick Brunner for offering illegal leveraged, off-exchange commodity transactions to retail customers in the United States.  The suit, brought in the United States District Court for the District of Columbia, also charges 1Pool with being an unregistered broker which failed to have in place adequate anti-money laundering and know your customer procedures.[1]  1Pool is a limited liability company organized under the laws of the Republic of the Marshall Islands.  Brunner is 1Pool’s Chief Executive Officer and a resident of Austria.

1Pool, which had no physical presence in the U.S., advertised that “we connect Bitcoin with global markets.”  Through its website, 1Pool solicited customers, including U.S. customers, to trade contracts for differences or CFDs.  A CFD is an agreement to exchange the difference in value of an underlying asset between the time in which the CFD position is established and the time it is agreed to terminate.  1Pool offered CFDs tied to the value of gold and West Texas Intermediate crude oil, among other commodities.  Customers transferred Bitcoin to 1Pool for margin deposits and the CFD’s traded through 1Pool’s online trading platform were settled in Bitcoin. 

The case is another reminder of the extra-territorial reach that U.S. regulators and courts assert for federal securities and commodities laws and regulations. If offshore persons offer financial services and products to U.S. customers in violation of U.S. law and regulation, they are subject to civil regulatory penalties, civil judgments for damages and possible criminal penalties.[2]  Moreover, 1Pool’s acceptance of Bitcoin for customers’ margin deposits and payment of Bitcoin to customers for their profitable CFD trades, rather than U.S. Dollars or another sovereign currency, do not insulate 1Pool, in the CFTC’s view, from the application of U.S. commodities laws and regulations.

 

[1] CFTC v. 1Pool Ltd. and Patrick Brunner, Complaint, Docket No. 1:18-cv-02243 (D.D.C. Sept. 27, 2018).

[2] D. Alter, What’s Extraterritorial on the Blockchain?: “In re Tezos Securities Litigation” and the Application of U.S. Securities Law to “Foreign” ICOs, The WLF Legal Pulse (Sept. 10, 2018) available at: https://wlflegalpulse.com/2018/09/10/whats-extraterritorial-on-the-blockchain-in-re-tezos-securities-litigation-and-the-application-of-u-s-securities-law-to-foreign-icos/

 

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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking.  This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.