CFTC Fines Crypto Betting Service Polymarket $1.4M for Unregistered Swaps

The Commodity Futures Trading Commission (CFTC) fined crypto predictions service Polymarket $1.4 million, ordered it to shut down its various markets and offer users full refunds on charges the company failed to register with the regulator.

The CFTC announced the penalties Monday, ordering Polymarket (the operating name for Blockratize, Inc.) to wind down all of its markets because it did not seek a Designated Contract Market (DCM) or Swap Execution Facility (SEF) registration, two requirements under the Commodity Exchange Act for companies offering binary options in the U.S.

Polymarket is a crypto betting service which allows users to pick one of at least two options on given trades, such as who might win the 2020 presidential election. According to an order published by the CFTC, Polymarket offered at least 900 such markets over the last 18 months.

These markets are swaps under federal law.

Polymarket cooperated with the investigation, according the CFTC’s press release, leading to a reduced fine. The company will stop offering markets by Jan. 14, 2022 and commit to making all funds available to users by Jan. 24, according to the order. Polymarket will also cease and desist any further violations of the CEA, though it does not appear the company itself will be shut down.

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.”

A Polymarket spokesperson did not immediately provide a comment.

Bloomberg reported that Polymarket was under investigation in October 2021. However, now-former CFTC Commissioner Dan Berkovitz said in June 2021 that in his view, decentralized finance (DeFi) markets for derivatives would fall under his agency’s purview.

“The CEA does not contain any exception from registration for digital currencies, blockchains or smart contracts,” he said.

In a statement sent by an external spokesperson, Polymarket said it would wind down three markets and offer refunds to its users by the Jan. 14 deadline. The company plans to share more information in the future about its plans.

“We have been encouraged by our learnings through this experience and have built out an exceptional compliance team and robust internal practices and procedures, which will ensure that compliance remains an integral pillar of Polymarket’s global business going forward,” the statement said.

UPDATE (Jan. 4, 2022, 00:00 UTC): Adds additional context. Adds a statement from Polymarket.

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