By Nate Raymond
BOSTON (Reuters) - The U.S. Commodity Futures Trading Commission on Thursday urged a federal judge to conclude that an obscure virtual currency called My Big Coin is a commodity subject to its oversight, saying it is no different than precious metals like gold.
U.S. Judge Rya Zobel in Boston questioned a CFTC lawyer about the extent the regulator had jurisdiction to pursue a lawsuit against the operators of what it contends was a $6 million virtual currency fraud scheme.
That lawsuit, filed in January against technology entrepreneur Randall Crater and My Big Coin Pay Inc, is being closely watched by lawyers who say it could determine to what extent the CFTC can police cryptocurrency frauds.
Jonah McCarthy, the CFTC attorney, compared the virtual currency to gold and other precious metals as he argued that it amounted to a good that falls within the Commodity Exchange Act's broad definition of commodities.
"It's not a really complicated concept," he said. "It's just a digital alternative to something like gold."
But Katherine Cooper, a lawyer for Crater, said that because My Big Coin does not have future contracts trading on it, it is not a commodity that the CFTC could pursue a case over.
"In this case, I submit to you, your honor, that they gone way beyond the remit of their authority," she said.
Zobel questioned both sides about how virtual currencies work. She did not immediately rule on Crater's motion to dismiss the case, but said she would "cheerfully dive into this."
"I will try very hard to get you a fast decision," she said.
The arguments represented a challenge to the CFTC's oversight of cryptocurrencies, which are not backed by any central bank.
Regulators have expressed concern about fraud schemes targeting cryptocurrency users, but questions linger about who has jurisdiction over them.
In its lawsuit against Crater and Nevada-based My Big Coin Pay, the CFTC says the defendants misappropriated $6 million from 28 customers they lured by naming their virtual currency to sound like bitcoin and further claiming it was backed by gold.
In March, a federal judge in a different case, U.S. District Judge Jack Weinstein in Brooklyn, ruled for the first time that virtual currencies can be regulated by the CFTC as a commodity.
But Crater's attorneys note that Weinstein's ruling involved the most popular virtual currency, bitcoin, which is the only one on which futures contracts are traded in the United States.