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Federal government cracks down on Bitcoin operator

September 17, 2015, 10:12 PM UTC
Tibanne CEO Mark Karpeles At Mt.Gox Bitcoin Exchange And Bitcoin Images
A twenty-five bitcoin is arranged for a photograph in Tokyo, Japan, on Thursday, April 25, 2013. The digital currency, which carries the unofficial ticker symbol of BTC, was unveiled in 2009 by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Supply is capped at 21 million Bitcoins and managed by a software algorithm embedded into the digital currency?s design, rather than a monetary authority such as a central bank. Photographer: Tomohiro Ohsumi/Bloomberg via Getty Images
Photograph by Tomohiro Ohsumi — Bloomberg/Getty Images

(Reuters) – U.S. derivatives regulators brought their first case against a Bitcoin trading platform on Thursday, declaring that virtual currencies are deemed “commodities” covered under existing law.

The Commodity Futures Trading Commission said it had reached a settlement with San Francisco-based Coinflip and its Chief Executive Francisco Riordan.

Bitcoin, a Web-based “cryptocurrency” sold through exchanges, provides a vehicle for moving money across the world quickly and anonymously without the need for third-party verifications.

The agency said Coinflip was operating an online platform known as Derivabit, which helped match up buyers and sellers with Bitcoin options.

Because these Bitcoin options are deemed “commodities,” the CFTC said the business should have been properly registered and subject to the laws governing swaps.

“While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said Aitan Goelman, the head of the CFTC’s Enforcement Division.

Riordan, who represented himself in the case, said he felt the settlement with the CFTC was fair.

He added that all of his customers’ money was refunded in July 2014, before the CFTC contacted him, and that there was not enough trade volume for the site to be sustained.

The CFTC did not impose any penalties on him or his firm, and Riordan settled the case without admitting or denying the charges.

Thursday’s case is not the first time U.S. regulators have sought to bring virtual currencies into the regulatory fold.

The Securities and Exchange Commission has also brought a handful of cases so far involving Bitcoin, including one case late last year against a computer programmer who ran virtual currency trading platforms that were not registered as brokers, as required by law.

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