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Caroline Pham, a CFTC commissioner, has publicly criticized her agency’s legal action against the crypto exchange KuCoin.
The Commodity Futures Trading Commission, in collaboration with the U.S. Department of Justice, charged KuCoin on March 26 for unlawfully operating a digital assets derivatives exchange.
The charge by the CFTC has sparked controversy, particularly regarding jurisdictional boundaries between the CFTC and its sister regulatory body, the Securities and Exchange Commission (SEC).
“Owning shares is not the same thing as trading derivatives,” Pham stated, expressing concerns that the CFTC’s complaint conflates the concept of investment securities with trading activities. According to Pham, the agency’s interpretation could potentially infringe upon the SEC’s authority, undermining established investor protection laws.
Pham argued that the complaint “appears to assert that fund shares held by investors—namely, securities—can themselves constitute leveraged trading,” a stance she believes incorrectly merges the nature of a financial instrument with financial activity, disrupting securities market foundations.
The incident highlights the ongoing debate and confusion over the precise regulatory purview of cryptocurrencies within the United States.
The SEC and CFTC have previously clashed over classifying specific cryptocurrencies, such as Ether (ETH). SEC Chair Gary Gensler suggests many cryptocurrencies fall under securities, while the CFTC views Ether as a commodity in its recent charges.
The divergence in viewpoints shows the critical regulatory situation, as CFTC Chair Rostin Behnam pointed out during a congressional hearing earlier this month. Behnam emphasized the significant implications if the SEC were to classify ether as a security, potentially putting CFTC registrants who list ether futures in a position of non-compliance with SEC regulations.
