Crypto Prime Broker Illegally Operated in the US: Settles for $1.8 Million

In its latest action against non-compliance in the crypto industry, the Commodity Futures Trading Commission (CFTC) has settled with FalconX, a crypto prime brokerage firm that failed to register as a futures commission merchant (FCM), for $1.8 million. The platform further received a cease-and-desist order from offering services to US residents.

CFTC Busts FalconX

Announced yesterday (Monday), FalconX is being operated by a Seychelles-registered firm, Falcon Labs. The regulator also highlighted that actions against the entity were the first against an unregistered FCM that "inappropriately facilitated access to digital asset exchanges.”

Out of the total settlement amount, $1.18 million will be recovered as disgorgement, which the platform collected as fees, while it must pay the remaining $589,504 as a civil penalty.

From around October 2021 until at least the end of March 2023, FalconX functioned as an intermediary and facilitated crypto trading with direct access to multiple exchanges. The customers on the platform, including US institutional customers, first created a main account in their own name and then associated sub-accounts on crypto exchanges.

According to the CFTC, neither the crypto exchanges required customer-identifying information for the sub-account holders, nor did FalconX provide it.

“The CFTC’s enforcement program has made clear it will not tolerate digital asset exchanges that fail to register with the CFTC or comply with the agency’s rules that maintain integrity in the derivatives markets,” Ian McGinley, the Director of Enforcement at CFTC, said, adding that the agency is now “taking the fight one step further by, for the first time, charging an intermediary that inappropriately facilitated access to those exchanges.”

Cooperation Pays Off

The regulator further pointed out that FalconX cooperated in the investigation, resulting in a reduced monetary penalty. Similar results of cooperation with the authorities were seen in the sentencing of Binance’s Changpeng Zhao, who cooperated in the investigation and received only four months in prison.

“Today’s action highlights that the CFTC will not hesitate to charge any entities—exchanges or intermediaries—who are providing customers access to digital asset products and services that require registration but have failed to appropriately register,” McGinley added.