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Confusion “R” Us: Does the CFTC mean stablecoins are not securities in settlement order with respect to Tether? – Finance and banking

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Confusion “R” Us: Does the CFTC mean stablecoins are not securities in settlement order with respect to Tether?

October 20, 2021

Katten Muchin Rosenman LLP

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The CFTC has sowed more confusion about the regulatory status of stablecoins under US law with its order dated October 15, 2021 to initiate and resolve proceedings against four tether companies.

In filing this complaint, the CFTC alleged that its jurisdiction was based on the principle that all “[d]Digital assets such as Bitcoin, Ether, Litecoin and Tether tokens are raw materials “and for this reason all digital assets are subject to the applicable provisions of the Commodity Exchange Act (CEA) and the CFTC regulations.

However, under the CEA, no potential jurisdiction is conferred on the CFTC[s] or limit[s] that jurisdiction conferred on the Securities and Exchange Commission or other regulatory agency under the laws of the United States or any state at any time. “

The CFTC alleged that at various times the Tether companies made false or misleading statements in support of Tether tokens. The CFTC claimed that from at least June 1, 2016 to February 25, 2019, the Tether companies publicly represented that Tether tokens were 100 percent covered by corresponding fiat assets, but at best the tokens were at best a mixture of Assets were backed and fully backed by fiat currency only 27.6 percent of the time. The Tether companies have agreed to pay $ 41 million to clear up the CFTC’s allegations.

However, what remains very unclear due to the resolution order of the CFTC is whether the CFTC regards stablecoins exclusively as raw materials (just like Bitcoin) or also as securities (or even other financial products) and is subject to supervision by the SEC and other federal authorities and also state supervisory authorities . Indeed, in her thoughtful approval, CFTC Commissioner Dawn Stump remarked: “I would like to reiterate my concern that enforcement actions like this one affecting digital assets could create confusion about the role of the CFTC in this area … [I]By following up and resolving this matter, we are giving stablecoins users the false feeling that we are overseeing those who issue and sell those coins so that they can be protected from wrongdoing. “

Regulation by enforcement only confuses the landscape and is a poor substitute for clear laws and rules or even meaningful guidelines.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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