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The Commodity Futures Trading Commission (CFTC) announced on March 26, 2024, that it has filed a civil enforcement action against several entities collectively operating under the name KuCoin. The lawsuit, filed in the U.S. District Court for the Southern District of New York, alleges multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.
The entities named in the complaint are Mek Global Limited, PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited. The CFTC alleges that KuCoin engaged in illegal off-exchange commodity futures transactions and leveraged retail commodity transactions. The regulator also claims that KuCoin operated without proper registration as a futures commission merchant (FCM), swap execution facility (SEF), or designated contract market (DCM).
Additionally, the complaint charges KuCoin with failing to implement an effective customer identification program and adequately supervise its FCM activities.
The CFTC is seeking disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations.
Ian McGinley, Director of Enforcement at the CFTC, stated: "For too long, some offshore crypto exchanges have followed a now-familiar playbook by offering derivative products and falsely claiming people in the United States cannot use their platforms, when in reality, anyone in the U.S. with commonly used technology can trade without providing basic customer identifying information."
McGinley added, "As made clear by the CFTC's action today and its previous enforcement actions, the CFTC's playbook should also now be familiar – the CFTC will charge such entities with failing to register with the CFTC and failing to comply with the agency's rules that protect U.S. customers and prevent and detect terrorist financing and money laundering."
The complaint alleges that KuCoin offered and executed commodity derivatives and leveraged transactions to U.S. residents from approximately July 2019 to June 2023, without implementing required know-your-customer (KYC) procedures. The CFTC claims that KuCoin's purported KYC procedures were ineffective in preventing U.S. customers from trading on the platform.
In a related criminal action, the U.S. Attorney's Office for the Southern District of New York has filed an indictment against PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited for alleged violations of the Bank Secrecy Act and operating an unlicensed money transmitter business.
