LedgerX executives accuse CFTC of prejudice

According to LedgerX executives, CFTC chairman Christopher Giancarlo deliberately created obstacles in the process of considering the company’s application for registration of a clearing center for derivatives (DCO).

“We have enough evidence to believe that the delay was not substantiated and violated the law on commodity exchanges. It’s all about the chairman’s hostile attitude to the blog post that was published by our CEO, ”the letter of July 3, 2019 says. It is not known which publication was the culprit for the biased attitude. LedgerX CEO Paul Chou said:

“In January this year, the chairman called one of the members of our board of directors and informed him that he would personally verify that our application for DCO registration was canceled in two weeks. This decision was associated with a negative attitude to the publication that I wrote last year. As a result, the chairman decided to give priority to a larger company, which in combination was our competitor. ”

At the same time, “larger company” means ICE with its Bakkt trading platform. Christopher Giancarlo did not comment on the allegations. CFTC spokesman Michael Short also did not say anything about this, but noted that “the regulator treats everyone the same way, and the LedgerX business needs to be studied in detail.”

The commission proposed that the company receive insurance and undergo a standardized audit to ensure that it complies with legal and technical provisions. Representatives of LedgerX believe that both requirements are “completely contrived.” The letter said that CFTC employees tried to intervene and fake the results of the audit, and the auditors said that “they had never seen such things before.”

“Initially, the chairman wanted to revoke the LedgerX license because Bakkt was not particularly promoted, but there was no legal basis for this. Commissioners turned to an independent auditor to fake the results of the audit and thereby find a reason for cancellation. Employees acknowledged this information as true and apologized, ”wrote LuthgerX COO Juthica Chou on September 28 on Twitter.

The request for insurance could cause problems for the CFTC staff themselves, because they would have to require other potential applicants to go through this procedure. In other words, ErisX and Bakkt would also be forced to meet stated standards.

“We talked with the heads of the unit. They believe that what is happening is a complete mess, and one said at all: “I feel like a guard in a concentration camp, because I simply have to follow orders from above.” At the same time, the instructions did not correspond at all to the regulatory framework created for the adoption of unbiased and completely objective decisions. They were based solely on Giancarlo’s personal dislike of me because of the published post, ”the letter says.

The same statements are in the letter dated July 11th. It says that a LedgerX application for DCO registration has been considered for 250 days, while federal law provides for a decision period of 180 days. Short argues that the delay is due to “numerous changes in the approach to licensing the company.”

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In addition, the letters say that if LedgerX wants to obtain the registration of the trade repository (SDR), it is obliged to report to the division of ICE, which last year began developing the competing trading platform Bakkt.

“We met with an employee of the ICE Technology Advisory Council for a private conversation, and he admitted that they found our contract interesting and the approach right. We were able to record a conversation that ICE staff seemed to drown on their part. It said that they received an order to delay the receipt of reports from our SDR so that we could not start trading. This approach completely eliminates any competition factor. A bit later, the head of the department met with our operations director and admitted that I was right when I accused the service of prejudice against us and more loyal to certain companies. ”

LedgerX executives said the CFTC litigation entailed “significant costs” and the loss of several employees. Referring to an unnamed journalist, representatives of the company claim that “insiders in power” passed on the information received from them to “large competitors from the private sector”.

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If not for gross violations by the chairman of the Commission, LedgerX could well get ahead of Bakkt and launch supplying bitcoin futures at the end of July, thus becoming the first US regulated company to introduce such a product. However, the Bakkt platform received this status by presenting the tool on September 23.

Note that in August, LedgerX announced the start of trading in deliverable bitcoin futures. The company claimed to have licenses to operate as a futures exchange (DCM) and to clear cryptocurrency derivatives (DCO), but the CFTC denied this statement, saying that LedgerX did not actually receive Commission permission to launch this product.