After being publicly chewed out by the CFTC, LedgerX CEO Paul Chou launched a Twitter so profane and over the top that the company’s spokesperson quit immediately.
An hour after Chou accused the Commodity Futures Trading Commission (CFTC) regulator of acting in bad faith and being in the pocket of one of the largest companies it oversees, RGPR agency founder Ryan Gormley took to twitter with a message of his own.
“Due to concerns over the events of the past 24 hours, we have decided to terminate our relationship with LedgerX, effective immediately,” Gormley said. He added the corporate kiss of death in a firing, saying, “we wish them the utmost success going forward.”
The fight began this morning, after the CFTC released a statement denying LedgerX’s claim on July 31—announced to great fanfare—that it had become the first company to offer physically settled bitcoin futures contracts to individual investors.
“LedgerX does not have a derivatives clearing organization (DCO) license to trade futures,” a CFTC spokesperson told Modern Consensus—and every other media organization covering cryptocurrency— this morning.
At 1:17 p.m. ET, Chou launched into a Twitter tirade, tweeting in reply to a Coindesk story, “also, breaking — CFTC is breaking the law right now. They have acted in horrible ‘good faith.’”
He immediately added, “if the government does not do the right thing, we will sue them, period. already talking to our lawyers about this.”
At 1:21 p.m., Chou began dropping F-bombs, suggesting that he had proof LedgerX had the right to trade futures. He tweeted, “i have recordings for this type of thing, and i am going to release all of them on twitter until the government does their fucking job.”
Three minutes later, he added, “true quote from one of my executives: ‘how the fuck are we wasting so much tax payer money with the CFTC’. do they really have nothing else to do? like monitor swaps or something?”
That one drew Chou’s first rebuke, with Twitter member @operationzoom replying “I’ve always maintained those in leadership positions at crypto entities have a long way to go in terms of developing public professionalism. Complaining and expletives do no[t] engender trust, which is a commodity and store of value in its own right.”
The CFTC apparently had a similar response to the expletives, as about 20 minutes later a not-very-chastened Chou tweeted, “CFTC asked us to censor our tweets. we did. but never again, this is a disaster to democracy.”
Then at 1:56 p.m., Chou announced, “also breaking, i’ve decided to sue the CFTC for anti competitive behavior, breach of duty, going against the regs, etc.”
But if profanity had been put in the corner, common sense hadn’t.
That last tweet drew a reply from Twitter denizen @Silver_Watchdog accusing the CFTC of being in the pocket of one of the world’s largest derivatives trading companies: “CME practically owns CFTC in case you haven’t notice[d].”
CME Group owns two major U.S. commodities exchanges, the Chicago Mercantile Exchange and the Chicago Board of Trade.
Chou responded at 2:22 p.m. by besmirching the ethics of the people who regulate his business, saying, “yeah it’s a real thing, def noticed it….”
At 3:26 p.m., LedgerX was no longer represented by RGPR, which Gormley announced in a Tweet pinned to the top of his Twitter feed.
The race to physical settlement
When the CFTC licensed LedgerX as a designated contract market(DCM) on June 24, Chou told Modern Consensus in an email, “[o]btaining CFTC approval to offer physically settled bitcoin futures, options, and swaps to retail investors is the culmination of years of hard work, but it is only the beginning. In the coming months we plan to offer more exotic derivatives, lower minimum investment thresholds, and bring other innovations to the crypto markets.”
Physically settled futures contracts mean that when the contract expires, one party sends the other actual bitcoin. In a cash settled contract, the price difference of the commodity—whether that’s bitcoin or wheat—when the contract is agreed to and when it ends involves no actual delivery of that commodity at settlement; it’s essentially a cash wager.
A DCM license generally allows the holder to offer physically settled futures contracts to retail clients, not just the institutional clients that can show more than $10 million in assets. LedgerX already offer futures contracts to institutional clients. While retail clients have less funds, there are potentially vastly more of them, so it is a much bigger and—in the cryptocurrency industry—much sought after market.
Unfortunately, there was a fly in LedgerX’s ointment.
As the CFTC’s June 24 press release announcing the DCM license made clear, another license obtained by LedgerX in 2017—the DCO—hobbled its ambitions.
“LedgerX has requested that the CFTC amend its order of registration as a DCO, which limits LedgerX to clearing swaps, to allow it to clear futures listed on its DCM,” it read. LedgerX did not respond to an emailed request for comment.
On July 2, the CFTC issued another DCO license to TD Ameritrade-backed ErisX. This one allowed futures clearing, though it has not begun offering such contracts yet. NYSE-owner Intercontinental Exchange’s Bakkt also has a DCM license application pending.
Jeffrey Sprecher, the CEO of Intercontinental Exchange (ICE) said in an earnings call last week that Bakkt plans to launch its physically settled bitcoin futures soon.