In Brief:
- The Commodity Futures Trading Commission (CFTC) has taken the first crypto enforcement action of the year in the U.S.
- Polymarket must pay a $1.4 million civil monetary penalty.
- Polymarket to close three markets and issue refunds to users by the Jan. 14 deadline.
- Whistleblowers are eligible for 10% to 30% of the monetary fines.
The CFTC announced the penalties on Monday, ordering Delaware registered Polymarket (the operating name for Blockratize, Inc.) to close all of its markets because it failed to apply for a Designated Contract Market (DCM) or Swap Execution Facility (SEF) registration, both of which are essential by the Commodity Exchange Act for companies that offer binary options in the United States.
“Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts, known as ‘event markets,’” said the derivatives regulator after a detailed investigation which came into limelight in October 2020.
Polymarket’s popularity surged during the pandemic and was found to have operated a “illegal unregistered or non-designated facility” since June 2020, according to the CFTC, which issued an order filing and simultaneously settling charges against the platform on Jan. 3.
Polymarket must pay a $1.4 million civil monetary penalty as well as wind back any markets on the platform that do not conform with CFTC and Commodity Exchange Act (CEA) requirements, according to the decision. Polymarket replied on January 4 with a tweet that they were “excited to move forward.”
The order acknowledged that, while stationing smart contracts hosted on a blockchain to operate the markets, Polymarket has offered more than 900 separate event markets since its inception.
Polymarket is a U.S. based crypto betting service letting users pick one of at least two options on given trades, including things like “who might win the 2022 presidential election?” and “What percent of US Covid-19 cases will be from the Omicron variant on January 1, 2022 ?”
In a statement, Acting Enforcement Director Vincent McGonagle said “all derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space.”
Polymarket said in a statement supplied by an external representative that it would close three markets and issue refunds to users by the Jan. 14 deadline.
Avoid Unregistered Binary Options Trading Platforms and Beware of Off-Exchange Binary Options Trades are two of the many client advisory protection warnings by the CFTC. Customers and other persons can call the Enforcement Office, file a tip or complaint online, or contact the Whistleblower Office to report suspicious actions or information. Whistleblowers are eligible for 10% to 30% of the monetary fines collected from the Customer Protection Fund.
