CFTC Ramps Up the Regulatory Crypto Battle with New Charges

A sub-plot to the recent scandals and failures in the cryptoverse has been competition between US regulators to win control of any regulatory framework in that country. The Securities and Exchange Commission (SEC) often refers to cryptoassets as securities, while the Commodity Futures Trading Commission (CFTC) sees them as derivatives.

Nowhere more was this highlighted than in both regulators filing independent charges against FTX and its trading subsidiary Alameda Research, where both arguments were shaped towards their own regulatory view.

The latest shot in this underground battle has been fired by the CFTC, which has joined the US Department of Justice in charging Avraham Eisenberg, a trader it accuses of “oracle manipulation” which enabled him to make $114 million via decentralised exchange Mango Markets (which shut down shortly after his alleged manipulation was revealed). CFTC says Eisenberg was able to establish two separate accounts, take opposite leveraged positions, and then effectively provide wash trades between the two because Mango never checked the owner of either account.

The Oracle manipulation came about because the price on Mango was determined by prices on three other digital asset exchanges offering trading in USDC and Eisenberg was, CFTC alleges, able to manipulate the price on these data inputs. After being found out, Eisenberg apparently returned $67 million to Mango Markets, but still held $47 million in digital assets, CFTC says.

In a statement accompanying the charges, CFTC commissioner Caroline Pham makes the case for CFTC oversight of digital assets by saying, “Since May 2022, I have highlighted the CFTC’s leading role in bringing digital assets within the regulatory perimeter so that important protections for customers and market participants apply. And I have said that many products that are offered on digital asset exchanges, including products involving trading stablecoins, may be some type of derivative within the CFTC’s jurisdiction. This complaint makes clear that ‘perpetual futures’ can constitute swaps.  A swap is a swap, even by any other name.”

Pham’s statement was accompanied by one from fellow commissioner Kristin Johnson, who adds, “I have long been concerned about the potential for fraud and manipulation in digital asset markets, and, since my appointment as a commissioner at the CFTC, have advocated for us to use our existing authority to vigorously pursue misconduct, including fraud and manipulation, even in novel venues like a decentralised digital asset exchange.”