CFTC Wins Landmark Ruling Declaring Ether a Commodity, Expanding the Agency\'s Authority Over Crypto Markets

The ruling, issued by Judge Mary M. Rowland of the US District Court for the Northern District of Illinois on July 1, 2024, affirms the CFTC's broad authority to combat fraud in cryptocurrency markets and explicitly declares Ether to be a commodity subject to CFTC oversight.

A federal court has granted summary judgment in favor of the Commodity Futures Trading Commission (CFTC) in its case against Sam Ikkurty and his company Ikkurty Capital LLC, according to a recent ruling. The CFTC alleged that Ikkurty and his company operated a fraudulent cryptocurrency scheme, misappropriating investor funds and making misleading statements about trading profits.

The court's decision not only entitles the CFTC to disgorgement against the defendants but also addresses several key issues that have been the subject of ongoing debate in the crypto regulatory landscape.

Here are some highlights of the ruling:

**Ether Declared a Commodity**

The court explicitly declared Ether to be a commodity subject to CFTC jurisdiction. While the CFTC has long maintained this position and has even allowed futures contracts on Ether to be traded on regulated exchanges, this appears to be the first time a federal court has directly addressed the issue in a ruling.

The court stated unequivocally: “In its complaint, the CFTC identified two cryptocurrencies, Bitcoin and Erethreum [sic], as commodities that Defendants invested in. Through discovery the CFTC also identified two additional cryptocurrencies, OHM and Klima. . . [T]he Court finds that there is no genuine dispute that Defendants transacted in cryptocurrencies that qualify as commodities under the CEA.”

This declaration provides legal backing to the CFTC's longstanding position and may influence future court decisions and regulatory approaches. However, it is important to note that this ruling does not preclude other agencies, such as the Securities and Exchange Commission (SEC), from also asserting jurisdiction over Ether or other cryptocurrencies in different contexts.

**Wrapped Bitcoin and Ether Deemed Commodities**

The court also addressed the status of wrapped Bitcoin (WBTC) and wrapped Ether (WETH), which are tokenized versions of Bitcoin and Ether on the Ethereum blockchain. The defendants had argued that they did not invest in Bitcoin itself, but rather in wrapped Bitcoin. The court dismissed this argument, stating that the distinction between wrapped and unwrapped versions of the cryptocurrencies was immaterial for the purposes of commodity classification. This interpretation suggests that the CFTC’s jurisdiction extends not only to the base cryptocurrencies but also to their wrapped counterparts.

**CPO Registration Requirement Triggered by Commodity Pool Operation**

The court agreed with the CFTC's allegation that Ikkurty and his company acted as commodity pool operators (CPOs) without proper registration, which is a violation of the Commodity Exchange Act (CEA). The court found that the defendants met the definition of a CPO under the CEA, which is a person who solicits, accepts, and trades funds in a commodity pool.

Importantly, the court rejected the defendants’ argument that they were not required to register as CPOs because they primarily dealt in spot transactions rather than futures or derivatives. The court clarified that the CPO registration requirement is triggered by the act of operating a commodity pool, regardless of whether the pool engages in futures, derivatives, or spot transactions. In examining the defendants’ activities, the court found that they met all the criteria of a CPO because they solicited, accepted, and pooled funds from multiple participants for the purpose of trading commodity interests.

**Looking Ahead**

This ruling represents a victory for the CFTC in its efforts to combat fraud in cryptocurrency markets and expand its authority over the crypto industry. The court's affirmation of the CFTC's broad jurisdiction over crypto fraud and its explicit declaration of Ether as a commodity are likely to have significant implications for future regulatory developments in this rapidly evolving landscape.

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