James Cirrone

In the latest example of regulation by enforcement, a judge from the Southern District of Florida issued a judgment in excess of $15.5 million against Digitex founder Adam Todd. He is accused of manipulating the price of his platform’s native DGTX token, among other charges. 



The CFTC initiated this complaint against Digitex in late September 2022, calling Digitex “<a href="https://blockworks.co/news/cftc-accuses-digitex-of-shopping-illegal-crypto-derivatives" target="_blank" rel="noreferrer noopener">an illegal digital asset derivatives trading platform.</a>”



Per the judge’s order, Digitex, all of its affiliated companies and Todd himself are banned from operating in CFTC-regulated markets and from even registering with the CFTC. 



Todd will also have to return nearly $4 million of what the CFTC considers ill gotten gains and pay around $11.7 million in a civil penalty.&nbsp;



CFTC Division of Enforcement Director Ian McGinley said the judge’s order found Todd was engaging in a pumping scheme of the DGTX token through “a computerized bot.”&nbsp;



This activity was allegedly happening throughout the summer of 2020, when the Digitex exchange was in the midst of getting off the ground. The bot, <a href="https://www.cftc.gov/PressRoom/PressReleases/8748-23">according</a> to the CFTC, was deployed on third-party exchanges that bought more DGTX than it was selling to benefit the reserves of the token within the Digitex treasury.&nbsp;



Additionally, the judge found that Todd illegally offered futures transactions, failed to register with the CFTC and did not implement a range of protection measures for the Digitex platform, including know your customer policies and anti-money laundering procedures. 



The judgment was submitted on July 5, but was announced by the CFTC Wednesday. 



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CFTC

CFTC wins battle against Digitex, platform is banned and founder on hook for $15M

Casey Wagner

<div id="highlights-block_633728508d189" class="highlights">
 <ul>
 <li>CFTC’s latest filing shows regulation by enforcement may be a trend here to stay</li>
 <li>Digitex’s founder is also alleged to have been involved in a ‘pump and dump’ scheme for the exchange’s native token</li>
 </ul>
 
</div>



As industry participants closely monitor how US cryptocurrency regulation is shaping up, the CFTC has yet another digital assets derivatives shop on its enforcement radar.&nbsp;



The watchdog on Friday filed a complaint against Adam Todd, founder of futures and derivatives trading platform Digitex.&nbsp;



According to the complaint, filed in the Southern District of Florida, Todd “owned, built, and operated an illegal digital asset derivatives trading platform.”&nbsp;



Todd also “attempted to manipulate the price of DGTX,” the exchange’s native token, by trying to “pump” its price on third-party exchanges, the CFTC alleges. DGTX, now trading at a fraction of a cent, is down about 8% in the past hour, per <a href="https://www.coinbase.com/price/digitex" target="_blank" rel="noreferrer noopener">Coinbase</a>. 



The CFTC is seeking monetary penalties, to be determined by a judge — plus complete repayment of funds to all customers and investors impacted by the alleged violations. The regulator also hopes a judge will rule that the exchange must shut down.



“Unless restrained and enjoined by this Court, Defendants are likely to continue to engage in the acts and practices alleged in this complaint and similar acts and practices, as more fully described below,” the complaint said.&nbsp;



Digitex’s <a href="https://digitex.io/" target="_blank" rel="noreferrer noopener">website</a> appeared to be down Friday following the filing. The exchange did not immediately respond to a request for comment. 



The filing comes shortly after the CFTC <a href="https://cms.blockworks.co/cftc-pursues-first-case-against-a-dao/" target="_blank" rel="noreferrer noopener">settled its charges</a> against Ooki DAO predecessor  bZeroX. According to the regulator, bZeroX, as well as founders Tom Bean and Kyle Kistner, have been ordered to pay $250,000 for their roles in deploying, marketing and soliciting customers to undertake transactions that did not occur on a designated market contract. 



Ooki DAO now faces similar charges, the CFTC said, as the DAO is allegedly operating the same software as bZeroX. The regulator is seeking restitution, disgorgement, civil monetary penalties, trading and registration bans as well as injunctions against further violations.



The enforcement actions come amid an uncertain regulatory environment for cryptocurrencies, made increasingly murky by the continued jurisdictional battle between regulators.



Earlier this month, SEC Chair Gary Gensler said the CFTC can have authority over bitcoin and other unspecified “non-security tokens.” Gensler’s team can take the rest of the industry, he suggested, but the decision ultimately <a href="https://cms.blockworks.co/bitcoin-ether-to-be-regulated-as-commodities-by-cftc-per-new-senate-bill/" target="_blank" rel="noreferrer noopener">rests with</a> Congress.



“The two agencies work very collaboratively,” ​​Valerie Szczepanik, director of the Strategic Hub for Innovation and Financial Technology (FinHub) office at the SEC, said during a <a href="https://www.youtube.com/watch?v=DZdj3p1_13c" target="_blank" rel="noreferrer noopener">panel discussion</a> at the Digital Asset Summit in New York earlier in September. “From my perspective, the agencies really want to get it right. It’s all about investor protection and market integrity and our two agencies want to cover the landscape so those goals are achieved.”



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