CFTC Commissioner Pham says KuCoin complaint ‘undermines’ SEC

Days after the Commodity Futures Trading Commission announced its civil lawsuit against crypto exchange KuCoin, one Commissioner is questioning whether the agency is overstepping.

Commissioner Caroline Pham in a statement Friday criticized the “aggressive enforcement action,” saying the complaint misinterprets what can be classified as “leveraged trading” and is therefore under the CFTC’s purview.

The complaint, filed Tuesday, classifies KuCoin’s “leveraged tokens,” which represent “shares” in funds controlled by the exchange, according to KuCoin, as digital asset commodity derivatives.

The CFTC alleges KuCoin violated the Commodity Exchange Act by offering these products, among others, without registration.

“This interpretation fails to distinguish between an investment in a fund, which would typically be a security under the jurisdiction of the [Securities and Exhcnage Commission], and the trading activities of a fund, alleged here to be under the CFTC’s jurisdiction,” Pham wrote.

If the leveraged tokens are securities, as Pham suggests, regulation of the products would fall under the SEC’s jurisdiction. The CFTC complaint undercuts securities regulators’ ability to oversee markets, Pham said.

“The CFTC’s approach may infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets,” Pham wrote. “Owning shares is not the same thing as trading derivatives.”

While the SEC has set its sights on other crypto exchanges, including Binance and Coinbase, it has yet to file an enforcement action against KuCoin, at least publicly.

KuCoin last December settled charges from New York Attorney General Letitia James’ office for $22 million for allegedly operating an unregistered exchange. That case notably referred to ether as a security, whereas the CFTC, in this latest complaint, lists ether and other cryptocurrencies as commodities.

Get the news in your inbox. Explore Blockworks newsletters:

Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
Empire: Start your morning with the top news and analysis to inform your day in crypto.
Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
The Drop: For crypto collectors and traders, covering apps, games, memes and more.
Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.