Judge Rules in Favor of DRW Investments LLC against CFTC

A New York federal judge has just ruled in favor of DRW Investments LLC in a case brought against it by the Commodity Futures Trading Commission (CFTC). DRW is also the company that owns Cumberland, a major cryptoassets management firm.

In 2013, the CFTC filed a lawsuit against DRW for alleged market manipulation but a New York federal judge has ruled against the suit. U.S. District Judge Richard Sullivan was scathing in his dismissal of the case brought forth by the CFTC and compared it to an “‘earth is flat’ style conviction.”

The judge said:

“It is not illegal to be smarter than your counterparties in a swap transaction, nor is it improper to understand a financial product better than the people who invented that product.”

He went on the argue:

“It is only the CFTC’s Enforcement Division that has persisted in its cry of market manipulation, based on little more than an ‘earth is flat’ style conviction that such manipulation must have happened because the market remained illiquid. Clearly, that is not enough to prove market manipulation or attempted market manipulation, and the CFTC has simply failed to meet its burden on any cause of action.”

“Artificially Inflated Prices”

The CFTC was alleging that DRW was using inflated electronic bids for interest rate swap futures to create artificial prices that would benefit its other positions in the market. The judge, however, found that the CFTC offered “no evidence” of this accusation.

Traders and exchanges were watching this decision with curiosity given that the CFTC has been ramping up its accusations in light of the 2010 Dodd-Frank Wall Street Reform & Consumer Protection Act. The CFTC is expected to be less bold with its lawsuits moving forward.

The ruling is especially prescient for the cryptocurrency industry. Cumberland, a cryptoassets management and investment firm, is part of DRW. Because the CFTC is falling under new management due to President Trump’s changes, regulatory oversight for cryptocurrency trading might be less severe than we’d expect. However, there are still many compliance questions to consider for the security token industry — along with the SEC’s own enforcement that will undoubtedly continue.

What do you think about the ruling? Does it have significant ramifications for the tokenized security space in your opinion? Let us know in the comments below.

Image courtesy of DRW.