FalconX pays $1.8 million to settle charges in landmark crypto case

Crypto prime brokerage firm Falcon Labs (FalconX) has settled with the U.S. Commodity Futures Trading Commission (CFTC) after the agency determined that the firm should have been registered.

In an order issued against the Seychelles-based firm, the CFTC stated that Falcon Labs acted as an “intermediary facilitating its customers’ trading on various digital asset exchanges.” As such, Falcon Labs should have registered with the agency as a futures commission merchant (FCM), according to the CFTC’s statement released on Monday.

The CFTC stated that Monday’s order represents the “first action against an unregistered FCM that inappropriately facilitated access to digital asset exchanges.” Falcon Labs did not admit or deny the CFTC’s findings but was ordered to pay over $1.8 million in fines.

The CFTC detailed that Falcon Labs traded futures and swaps through sub-accounts directly on digital asset exchanges, including Binance.com. The agency previously charged Binance and its former CEO Changpeng Zhao in March 2023, resulting in a settlement.

Following the CFTC’s charges against Binance, Falcon Labs voluntarily adjusted its practices by changing how it collected customer information and updating its know-your-customer (KYC) policies, as noted in the CFTC’s order. The stricter KYC measures resulted in FalconX losing half of its Edge customers.

“In recognizing Falcon Labs’ substantial cooperation and remediation in this order in the form of a lower penalty, the CFTC hopes to encourage other digital asset intermediaries operating illegally to come forward and report their activities to the agency,” said Ian McGinley, the CFTC’s Director of Enforcement, in a statement.

Through its “Edge” product, FalconX functioned as a crypto prime broker, providing institutional clients, including some based in the U.S., with access to various crypto exchanges for trading derivatives such as futures and swaps. Despite its claim of being the “largest digital asset prime brokerage,” FalconX was not properly registered with the CFTC.

One of FalconX’s portfolio companies, FalconX Bravo, has been registered with the CFTC as a swap dealer since last August.