LedgerX roars CFTC: Former chairman has delayed the approval of his license due to “personal grudges” and Bakkt received “special care”

According to Coindesk's September 28 report, recently, LedgerX executives collectively voiced that they were unfairly treated by the US Commodity Futures Trading Commission (CFTC) because of a blog post.

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According to CoinDesk's two letters from the Freedom of Information Act (FOIA), LedgerX believes that former CFTC Chairman J. Christopher Giancarlo has a personal bias against the company and has used the position to delay the revision of the division. Approval of the registration application for the subsequent Derivatives Clearing Organization.

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In the first letter of July 3, 2019, it was written:

"We have every reason to believe that this unreasonable delay in the apparent violation of the Commodity Exchange Act is related to the prejudice of the CFTC Chairman's blog post written by our CEO."

The reporter has not been able to contact Giancarlo for comment on this matter. If you get a reply, we will update this article. Paul Chou, CEO of LedgerX, told CoinDesk on the phone on Saturday that the content on the letter was accurate and contained only part of the information sent to the agency.

In the first letter, LedgerX claimed that former CFTC Chairman Giancarlo had threatened the company:

“In January 2019, the chairman called a member of our board of directors and said that he would definitely let our DCO application be revoked within two weeks, because I wrote a blog post last year that hinted that the CFTC would treat the preferential treatment. I gave it to a big company so that he could 'consolidate his position'. This refers to the approval of ICE / Bakkt, which was once a headache for the chairman."

It is unclear which blog post specifically refers to this letter.

Paul Chou said, “The dispute has been around for a long time.” The company was told in November 2018 that its revised DCO application “will be passed soon”, but later he found that the application has not yet been approved, so he There must be a bit tricky in the middle.

CFTC spokesperson Michael Short told CoinDesk that he could not comment on the allegations in the letter, but overall, "the CFTC treats all registered entities equally," and LedgerX's business needs more "wide consideration."

Deliberately martyrdom

The CFTC had asked LedgerX to purchase insurance and conduct an SOC 1 Type 2 audit to ensure that a company's controls were sufficient to meet its legal or technical requirements. LedgerX said in the letter that these two conditions are "completely fabricated." But CFTC agency officials later realized that the audit was "not what they thought."

The letter said that a CFTC staff member tried to tamper with LedgerX's audit, and some auditors who did not want to disclose their identity said that "they have never seen such a thing before."

On September 28th, LedgerX Chief Operating Officer Juthica Chou reiterated this statement on Twitter and wrote:

“The former chairman wants to cancel the LedgerX license application because there is no progress on Bakkt. Since there is no justifiable reason to do so, the agency staff had to contact our independent auditor to tamper with the audit report and give the committee reasons to revoke the permit. The employee has acknowledged the matter and made an apology."

Obviously, the agency’s insurance requirements also raise some questions because the agency’s staff are aware that “they must develop consistent rules among other potential applicants”, which means that ErisX and Bakkt must adhere to the same standards. The letter reads:

“We (LedgerX) had talked with the head of the CFTC department and discussed how messy there was. One of the supervisors told me that he felt like a 'guard in the concentration camp and obeyed the orders of the superiors'. These orders Completely out of the regulatory framework designed to judge the value and good reputation of an application fairly, in our opinion, this is entirely based on personal grievances between Giancarlo and me, because of the blog post I wrote."

In a second letter dated July 11, 2019, LedgerX reiterated this statement and stated that its DCO amendment application has been overdue for nearly 250 days (currently over 300 days). According to federal law, the CFTC has 180 days to approve or reject an application, but it is unclear what will happen if it is not processed.

According to Short of the Commodity Futures Trading Commission, the review process was "prolonged due to repeated changes in the company's licensing strategy."

Strictly favoring ICE

The letter also pointed out that the CFTC's swap data repository (SDR) requirements require Ledgerx to report to the Intercontinental Exchange's ICE Trade Vault, which announced last year that it would launch a product that competes with LedgerX through Bakkt. .

The letter of July 3 wrote:

“At a meeting of the Technical Advisory Committee, an employee of ICE privately admitted to me that they were very interested in our contract and thought it was very correct.

Later, we learned in the recording that when the ICE staff thought they had silenced their position, they received instructions to postpone support for our SDR report, so we could not start trading. We believe that these are incredibly anti-competitive behaviors. We filed a formal complaint about this anti-competitive aspect, but did not receive any response. A department head later personally admitted to our chief operating officer that some of the entities I mentioned were treated preferentially by the chairman's office. ” These alleged actions brought losses to the company. According to these letters, LedgerX has “stunned a considerable loss” and has lost many employees.

LedgerX also claims that an anonymous journalist from "one of the world's most respected news organizations" told the company that "government insiders" have been sharing information about the company's plans with "large private sector competitors." (It is speculated that its competitor is ICE.)

LedgerX said these actions "seriously violated" the law enforcement duties of the chairman.

Bakkt online

LedgerX almost beat Bakkt to launch a bitcoin futures contract for physical delivery at the end of July. However, at that time, the CFTC contacted CoinDesk, who first reported the futures issue, saying that the company "has not yet obtained approval from the committee."

As a result, ICE's Bakkt became the first US regulated company to offer this product earlier this month.

After Bakkt went live on September 23, Paul and Juthica Chou posted a series of tweets on these complex issues.

On September 20th, Fortune magazine published a pre-announcement article stating that Bakkt would provide "the first physical delivery cryptocurrency contract traded on a federally regulated exchange." In fact, LedgerX has offered physical delivery options contracts since 2017.

Fortune magazine's article was subsequently updated to clarify that Bakkt provided "the first physical delivery cryptocurrency futures contract traded on a federally regulated exchange." (The word "futures" is emphasized).

After the article was published, Juthica Chou asked Twitter if Twitter "will correct this article." After sharing the link to this article on Bakkt's Twitter account, she wrote in a subsequent tweet:

“Does CFTC also let them delete this tweet? (or, more accurately, the head of the law enforcement department will call them because they posted an article with the wrong message on Twitter, Like what they did to LedgerX?)"

Paul Chou told CoinDesk on Saturday that he was "expelled" by the CFTC Technical Advisory Committee. The committee will hold its next meeting on October 3. Paul Chou said:

"They didn't tell me why, but I think the reason they did it is obvious. One of the issues they want to discuss is hosting, LedgerX is currently the only member with a hosting service, so we are going to send Juthica to the conference."

He said that the CFTC contacted him on Friday night and told him that he would be removed from the list of participants.

Short told CoinDesk that deleting Paul Chou's name "is a unanimous decision of the committee." He added:

“Paul’s capricious and unprofessional behavior has the potential to distract participants from the important issues being considered by the committee.”

When asked about the next step, Paul Chou only said one sentence:

"I hope I know."

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