The recent charges against KuCoin by the Commodity Futures Trading Commission (CFTC) may infringe on the duties of the Securities and Exchange Commission (SEC), according to CFTC Commissioner Caroline Pham. Pham has suggested that the case does not adequately distinguish between investments in funds, typically under SEC jurisdiction, and the trading activities of a fund, which fall under the CFTC’s jurisdiction. This blurring of lines may undermine investor protection laws and disrupt securities market foundations.

CFTC Commissioner Caroline Pham expressed concerns on March 29 about her agency’s charges against KuCoin. While Pham acknowledged the action as an “aggressive enforcement action” and commended the Division of Enforcement, she raised concerns about some of the allegations.

Distinction needed

Pham pointed out that the complaint seems to suggest that fund shares held by investors can be a form of leveraged trading in their own right. This interpretation, she argued, does not distinguish between investments in funds, which are usually considered a security under the SEC’s jurisdiction, and the trading activities of a fund, which fall under the CFTC’s jurisdiction.

“Owning shares is not the same thing as trading derivatives,” Pham wrote, emphasizing the need for clear distinction between these two types of financial activities. She added that the CFTC’s handling of this issue “may infringe upon the SEC’s authority,” potentially undermining investor protection laws and disrupting securities market foundations.

KuCoin charged this week

On March 26, the CFTC filed civil charges against KuCoin and related companies. The charges included allegations of operating an illegal digital asset derivatives exchange and violating the Commodity Exchange Act (CEA) by failing to register with the CFTC.

In addition to the CFTC’s civil charges, the US Department of Justice also filed criminal charges against KuCoin and two of its founders. The charges include, but are not limited to, allegations of violations of anti-money laundering laws.

In response to these charges, KuCoin assured its users that their funds would remain safe and asserted that it has complied with various local laws. The company added that its legal team is currently examining the allegations made against it.