## Facts

- A California company operating the “Abra” mobile application and its Philippine affiliate offered customers contracts referencing price movements of digital assets and foreign currencies.
- Customers created platform wallets and posted bitcoin (BTC) as collateral, selected a reference asset, and entered into a smart-contract-based transaction with the respondents as counterparty.
- Payouts tracked the reference asset: customers gained BTC if the reference asset increased and lost BTC collateral if it decreased.
- To manage exposure as counterparty, respondents attempted to hedge by borrowing BTC and converting it into the reference asset on a one-to-one basis.
- From approximately December 2017 through October 2019, respondents accepted orders for and entered into thousands of these transactions with U.S. and non-U.S. customers.
- After receiving regulatory inquiries in early 2019, respondents ceased offering the contracts to U.S. customers but continued offering them to non-U.S. customers through the Philippine affiliate while U.S.-based operations provided key support (including product design, marketing, risk management, and user screening/approval).
- The transactions were offered off-exchange through the app and were not executed on, or subject to the rules of, a designated contract market.
- Respondents did not determine whether customers were “eligible contract participants” (ECPs) and did not implement ECP screening.

## Issues

1. Whether the app-based contracts referencing digital assets and foreign currencies were “swaps” and, if so, whether entering into them off-exchange with non-ECPs violated CEA § 2(e).
2. Whether soliciting and accepting swap orders and taking BTC collateral to margin or guarantee those swaps constituted futures commission merchant (FCM) activity requiring registration under CEA § 4d(a)(1).
3. Whether routing non-U.S. customer activity through a foreign affiliate avoided application of U.S. commodity derivatives regulation where substantial conduct occurred in the United States.

## Decision

- The CFTC instituted and settled an administrative enforcement proceeding based on an accepted offer of settlement without admissions or denials.
- The CFTC found respondents entered into illegal off-exchange swaps with customers, including non-ECPs, in violation of CEA § 2(e).
- The CFTC found respondents acted as unregistered FCMs by soliciting/accepting swap orders and accepting BTC collateral, in violation of CEA § 4d(a)(1).
- The order required respondents to cease and desist from further violations of CEA §§ 2(e) and 4d(a)(1).
- The order imposed a $150,000 civil monetary penalty.
- The CFTC noted it considered respondents’ remedial actions and cooperation in resolving the matter.

## Legal Principles

- Contracts providing synthetic exposure to a reference asset’s price movement, with payment obligations keyed to that reference value rather than delivery of the asset, may constitute “swaps” under the CEA.
- CEA § 2(e) prohibits a person who is not an ECP from entering into a swap unless the swap is entered into on, or subject to the rules of, a designated contract market; offering off-exchange swaps to retail users without ECP screening violates § 2(e).
- An entity acts as an FCM when it solicits or accepts orders for swaps and accepts money, securities, or property to margin, guarantee, or secure the resulting obligations; performing this function without CFTC registration violates CEA § 4d(a)(1).
- Jurisdictional analysis focuses on substantive U.S. connections; using a foreign affiliate as nominal counterparty does not preclude enforcement where key business functions are conducted from the United States.

## Conclusion

The CFTC determined that app-based, BTC-collateralized contracts tracking digital-asset and foreign-currency prices were swaps, and that offering them off-exchange to retail customers without ECP screening and while accepting collateral as an unregistered FCM violated CEA §§ 2(e) and 4d(a)(1), warranting cease-and-desist relief and a civil penalty.


In re Plutus Fin., Inc. & Plutus Techs. Phils. Corp., CFTC Docket No. 20-23 (C.F.T.C. July 13, 2020)