DeFi project unregistered and sued! Digitex CEO fined nearly $16 million

The CEO of the cryptocurrency exchange Digitex, Adam Todd, has been fined $15.65 million for multiple violations of the Commodity Exchange Act. The U.S. Commodity Futures Trading Commission (CFTC) accused him of manipulating the price of the platform's native token, illegally offering futures trading, and operating without registration. This case is seen as the CFTC's first successful enforcement action against an unregistered DeFi platform.

DeFi Project Penalized by CFTC for the First Time

According to a report by Blockworks, Adam Todd, the CEO of the cryptocurrency spot and futures trading platform Digitex, was fined a total of $15.65 million in improper gains and civil penalties by a U.S. court yesterday for multiple violations of the Commodity Exchange Act (CEA) related to alleged illegal trading. However, it is still unclear whether Todd or the company will be able to repay the fines.

The ruling also permanently prohibits Digitex, Todd himself, and affiliated companies from operating or registering in markets regulated by the CFTC, and bans Todd from participating in future operations, decisions, and developments of related companies such as Digitex, Digitex Software, and Blockster Holdings.

According to a CFTC press release, Todd and his company were accused of manipulating the price of the platform's native token $DGTX, illegally offering futures trading, and operating without registration with the CFTC while running the Digitex cryptocurrency exchange.

Coindesk claims this is the first case where the CFTC has accused a decentralized finance (DeFi) platform of being unregistered as an exchange and successfully won the lawsuit.

In response, Todd stated:

The cryptocurrency $DGTX that I created once reached a market value of $160 million, but is now accused of being a Ponzi scheme due to its inability to survive in the market competition.

Case Background

In September 2022, the CFTC charged Todd with operating an unregistered futures trading platform and market manipulation from May to August 2020 when Digitex was in its early stages, illegally soliciting U.S. customers, and failing to implement user identity verification (KYC) and anti-money laundering procedures.

The CFTC explained that Digitex met the definition of a foreign trading market but did not register with the CFTC as a futures broker. It also stated that Todd attempted to artificially inflate the price of its exchange's native token through third-party exchanges.

It is reported that Todd used trading bots on third-party exchanges to purchase more $DGTX than was being sold, artificially inflating the value of the tokens that Digitex had not yet released.

During the investigation, former CFTC Commissioner Dan Berkovitz expressed his views on DeFi in a speech in June 2021:

I not only think that using unlicensed DeFi technology for financial derivatives is not a good idea, but I also don't think they can operate legally under the Commodity Exchange Act.

$DGTX Nearing Zero

According to data from Coingecko, the trading volume of $DGTX has been extremely low in the past year, ranging from a few thousand to tens of thousands of dollars, with liquidity already in crisis. Its price has dropped by 99.95% from its all-time high.