Falcon Labs Fined $1.7M for Illegally Funneling U.S. Users into Crypto

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Falcon Labs Fined $1.7M for Illegally Funneling U.S. Users into Crypto
  • Falcon Labs charged by CFTC for illegal digital asset derivatives trading.
  • This firm will pay $1.76 million for unregistered U.S. customer transactions.
  • The case marks the CFTC’s first action against unregistered crypto derivatives activities.

The U.S. CFTC has made a significant crackdown on the crypto industry, taking enforcement action against Falcon Labs, a Seychelles-based crypto prime brokerage firm.

As per a press statement on Monday, the CFTC has charged Falcon Labs with illegal operations. The firm was found to have provided U.S. customers with access to crypto derivatives trading platforms without the necessary registration.

The report noted that from October 2021 to March 2023, Falcon Labs solicited and accepted U.S. customers’ orders for digital asset derivatives. It acted as an intermediary for Americans seeking crypto derivatives without the necessary CFTC registration. 

Notably, Falcon Labs granted its customers direct exchange access by initially creating a primary account under its name and subsequently establishing linked sub-accounts. Typically, the exchanges did not demand, nor did Falcon Labs provide, identifying information for the individuals holding these sub-accounts.

According to the order, Falcon Labs amassed net fees totaling about $1,179,008 from customer transactions in digital asset derivatives. Consequently, Falcon Labs has been hit with a substantial financial penalty. The firm has been ordered to halt its unregistered activities and pay a total of $1,768,512, which includes $1,179,008 in disgorgement and a $589,504 civil monetary penalty. 

Meanwhile, the order acknowledges that Falcon Labs proactively enhanced its customer location identification controls following the CFTC’s legal action against Changpeng Zhao and entities associated with Binance. 

This case marks the first instance where the CFTC has taken action against an unregistered futures commission merchant (FCM) for facilitating access to digital asset exchanges. Ian McGinley, the CFTC’s Director of Enforcement, emphasized the agency’s commitment to maintaining the integrity of the derivatives markets and its readiness to charge any entities that provide unregistered digital asset services.

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