The U.S. Department of Justice (DOJ) has taken legal action against the crypto exchange KuCoin and its Chinese founders, Chun Gan and Ke Tang. Simultaneously, the Commodity Futures Trading Commission (CFTC) has launched a civil enforcement action targeting KuCoin and its operating entities Mek Global Limited, PhoenixFin PTE Ltd, Flashdot Limited, and Peken Global Limited.
The CFTC’s complaint alleges that the aforementioned entities collectively operate the KuCoin crypto exchange, engaging in off-exchange commodity futures transactions and other regulatory infringements without proper registration with the CFTC.
The enforcement action specifically accuses KuCoin of offering and executing leveraged, margined, or financed retail commodity transactions, as well as dealing in commodity futures and swaps, without obtaining the requisite CFTC registration as a futures commission merchant (FCM). Additionally, the complaint highlights failures in supervising FCM activities, operating a facility for trading or processing swaps without CFTC registration, and neglecting to implement an effective customer identification program (CIP).
The CFTC’s litigation seeks disgorgement, civil monetary penalties, permanent trading and registration bans against KuCoin, and a permanent injunction to prevent future violations.
This case underscores the broader issue of offshore crypto exchanges operating in the U.S. without adhering to regulatory standards, including know-your-customer (KYC) procedures. Despite KuCoin’s purported implementation of KYC measures, the CFTC’s complaint suggests their ineffectiveness, allowing U.S. customers to partake in commodity interests and derivatives trading on the platform. Moreover, the absence of IP address restrictions or countermeasures against the use of technology such as virtual private networks (VPNs) exacerbates these regulatory breaches.
In a related criminal action, the U.S. Attorney’s Office for the Southern District of New York has charged PhoenixFin PTE Ltd, Flashdot Limited, and Peken Global Limited with violations of the Bank Secrecy Act, operating an unlicensed money transmitter business, and conspiracy-related charges.