Blockratize to Pay CFTC $1.4M Fine for Operating Unregistered Swap Facility and Undesignated Contract Market | Nelson Mullins Riley & Scarborough LLP

The Commodity Futures Trading Commission (“CFTC” or “Commission”) sanctioned Blockratize, Inc. d/b/a on January 3, 2022 and ordered it to pay a civil penalty of $1.4 million for violation of the law on the exchange of goods. (“Act”), the United States Code and Commission Regulations (“Regulations”) in its operation of an unregistered facility or an undesignated contract marketplace by offering and facilitating online trading event-based binary options contracts known as “event markets”. “Binary option contracts are financial products that only have two payout options if the contract is held to expiration:

  1. If the underlying reference asset is above a certain price at a certain time, the holder receives a fixed amount; Where
  2. If the underlying reference asset is below a certain price at a certain time, the holder receives nothing.

Through its website, Blockratize offered the public the opportunity to “buy their belief” by buying and selling binary options contracts tied to a future event. The Commission considered that these contracts derived from external events constitute swaps under the jurisdiction of the CFTC, which can only be offered on a registered exchange.

Over the past few years, the world has seen an increase in the move of FinTechs into the world of online gaming and gambling. Much of the legal and regulatory framework has not always been so clear where the lines are drawn between permitted and unauthorized platforms and offerings in this space. As the Blockratize case shows, the CFTC has demonstrated its willingness to apply existing rules and regulations to activities under its jurisdiction to establish jurisdiction and impose penalties on companies hosting online gambling and trading facilities. that offer swap trading. .

Developers and Adventurers, when bringing to market products that merge the concepts of gamification and e-commerce, must:

  1. Be diligent in how they structure their platform, games, and online trading sites;
  2. Recognize and take note of potential pitfalls to mitigate legal and regulatory risks and any resulting liability, and;
  3. Consult legal counsel familiar with the industry, standard practices, and applicable regulatory environment.

Read the order here.

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