Virtual currency, also known as cryptocurrency, can be regulated by federal agencies just like other commodities, according to a federal court order [text, PDF] issued Tuesday.
Jack Weinstein, Senior US District Judge for the Eastern District of New York [official website], wrote that virtual currency, such as bitcoin, is “[a]n important nationally and internationally traded commodity, [which] is tendered for payment for debts, although, unlike United States currency, it is not legal tender that must be accepted.
The ruling marks the first time a federal court has recognized that the Commodity Futures Trading Commission (CFTC) [official website] has standing to sue individuals and companies related to dealings in virtual currency. The CFTC first stated [order, PDF] in 2015 that virtual currency could be regulated as a commodity, but the matter had not been litigated until now.
The lawsuit arose when the CFTC sued [complaint, PDF] Patrick McDonnell, claiming his virtual currency consulting company, Coin Drop Markets, was defrauding customers by charging them fees in exchange for market advice, but never actually providing any consultation. McDonnell lured clients by promising them they could make 2 to 300 percent by following his trading advice, only to delete the company’s website and social media accounts once he’d acquired a substantial amount in fees.
In addition to announcing that the CFTC has standing and allowing the lawsuit to continue, Weinstein granted a preliminary injunction prohibiting McDonnell from doing business while the lawsuit is litigated.
The 79-page order includes a detailed overview of virtual currencies, and the need for oversight and regulation, prepared by the CFTC.