UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

In the Matter of: 

DARMA, LLC, 

Respondent.

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CFTC Docket No. 23-07

ORDER INSTITUTING PROCEEDINGS PURSUANT TO 

SECTION 6(c) AND (d) OF THE COMMODITY EXCHANGE ACT, MAKING 

FINDINGS, AND IMPOSING REMEDIAL SANCTIONS

I. INTRODUCTION

The Commodity Futures Trading Commission (“Commission”) has reason to believe that 

from in or about February 2019 to at least September 2020 (“Relevant Period”), DARMA, LLC

(“Respondent”) violated current Commission Regulations (“Regulations”) 4.7(b)(3) and (4) and 

166.3, 17 C.F.R. §§ 4.7(b)(3), (4), 166.3 (2022), and prior Regulation 4.7(b)(2) and (3), 

17 C.F.R. § 4.7(b)(2), (3) (2018).1 Therefore, the Commission deems it appropriate and in the 

public interest that public administrative proceedings be, and hereby are, instituted to determine 

whether Respondent engaged in the violations set forth herein and to determine whether any 

order should be issued imposing remedial sanctions. 

In anticipation of the institution of an administrative proceeding, Respondent has 

submitted an Offer of Settlement (“Offer”), which the Commission has determined to accept. 

Without admitting or denying any of the findings or conclusions herein, Respondent consents to 

the entry of this Order Instituting Proceedings Pursuant to Section 6(c) and (d) of the Commodity 

Exchange Act, Making Findings, and Imposing Remedial Sanctions (“Order”), and 

acknowledges service of this Order.2

1

 Regulation 4.7(b)(3) and (4), 17 C.F.R. § 4.7(b)(3), (4), establish periodic and annual reporting requirements for 

exempt pools. Prior to January 9, 2020, these requirements were found at Regulation 4.7(b)(2) and (3), 

17 C.F.R. § 4.7(b)(2), (3). These requirements did not change in substance when they were renumbered in January 

2020. 

2

 Respondent consents to the use of the findings of fact and conclusions of law in this Order in this proceeding and 

in any other proceeding brought by the Commission or to which the Commission is a party or claimant, and agrees 

that they shall be taken as true and correct and be given preclusive effect therein, without further proof. Respondent

does not consent, however, to the use of this Order, or the findings or conclusions herein, as the sole basis for any 

other proceeding brought by the Commission or to which the Commission is a party or claimant, other than: a 
2 

II. FINDINGS 

The Commission finds the following: 

A. SUMMARY 

During the Relevant Period, Respondent, a registered Commodity Pool Operator (“CPO”) 

and Commodity Trading Advisor (“CTA”), failed to diligently supervise its fund administrator’s 

activities, which resulted in Respondent failing to accurately prepare and distribute required pool 

statements to pool participants (“Pool Statements”) in a timely manner. Respondent also failed 

to file its annual audited pool financial statement (“Annual Financial Statement”) with the 

National Futures Association (“NFA”) in a timely manner. By its actions, Respondent violated 

its supervisory obligations under Regulation 166.3, 17 C.F.R. § 166.3 (2022), its obligation to 

timely prepare and distribute Pool Statements to its participants no less frequently than quarterly 

within 30 calendar days after the end of the reporting period (“Regulatory Deadline”) under 

Regulation 4.7(b)(3), 17 C.F.R. §4.7(b)(3) (2022), and Regulation 4.7(b)(2), 17 C.F.R. §4.7(b)(2) 

(2018); and its obligation to timely file its Annual Financial Statement with the NFA within 90 

days after the end of the pool’s fiscal year under Regulation 4.7(b)(4), 17 C.F.R. 

§ 4.7(b)(4)(2022), and Regulation 4.7(b)(3), 17 C.F.R. § 4.7(b)(3) (2018). 

In accepting Respondent’s Offer, the Commission recognizes the substantial cooperation 

of DARMA, LLC with the Division of Enforcement’s investigation of this matter. The 

Commission also acknowledges Respondent’s representations concerning its remediation in 

connection with this matter. The Commission’s recognition is reflected in the form of a reduced 

penalty. 

B. RESPONDENT 

DARMA, LLC. DARMA, LLC is a limited liability company located in Dorado, Puerto 

Rico. DARMA, LLC operates two Regulation 4.7 exempt commodity pools, DARMA Capital 

Master Fund LP (“Master Fund”) and DARMA Onshore Feeder LP (“Onshore Feeder Fund”). 

DARMA, LLC has been registered with the Commission as a CPO and CTA since September 

2018. 

C. FACTS 

Respondent operates exempt commodity pools under Regulation 4.7—the Master Fund 

and the Onshore Feeder Fund—both of which traded digital asset commodities consisting of 

Bitcoin and Ether.3 In November 2018, DARMA hired Administrator A as its third-party fund 

administrator. DARMA relied on Administrator A to accurately and timely calculate the pools’ 

 

proceeding in bankruptcy or receivership; or a proceeding to enforce the terms of this Order. Respondent does not 

consent to the use of the Offer or this Order, or the findings or conclusions in this Order, by any other party in any 

other proceeding.

3

 Regulation 4.7 provides relief from certain reporting requirements of the Act if the pool participants are qualified 

eligible persons (“QEPs”) as defined by Regulation 4.7(a)(2) and (a)(3). DARMA filed for a 4.7 exemption 

representing to the Commission that its pool participants were QEPs and was granted an exemption under 4.7. 
3 

net asset value (“NAV”), which was a necessary component of the Pool Statements that 

Respondent was required to prepare and distribute to pool participants. Notwithstanding the 

Regulatory Deadline set forth in Regulations 4.7(b)(3), 17 C.F.R. § 4.7(b)(3) (2022), and 

4.7(b)(2), 17 C.F.R. § 4.7(b)(2) (2018), Respondent represented to pool participants that the Pool 

Statements were targeted to be distributed two weeks after the end of the prior month 

(“Monthly Target Date”). 

Administrator A was consistently late in providing the NAV calculations to Respondent 

throughout the Relevant Period and when provided, the calculations were often inaccurate 

resulting in the preparation of inaccurate Pool Statements. In turn, the Pool Statements not only 

failed to be distributed to participants by the Monthly Target Date, but they were consistently 

distributed well past the Regulatory Deadline and in many instances needed to be revised and/or 

restated. 

For example, on or about May 2019, Respondent learned that Administrator A’s 

accounting systems only tracked fiat currencies, not Bitcoin or Ether, and in order to do the 

required calculations, Administrator A would have to convert the virtual currencies into its U.S. 

dollar equivalents. Administrator A failed to accurately do these conversions, resulting in errors 

in its NAV calculations. This issue only came to light when a pool participant questioned the 

accuracy of a Statement that they received. Respondent later learned that Administrator A also 

failed to properly record payments made to Respondent for fees and expenses, excluded certain 

transactions from its calculations, and improperly reconciled account balances. These issues 

affected both the accuracy and timeliness of the distribution of Pool Statements to participants, 

causing them to be chronically late and well past the Regulatory Deadlines throughout the 

Relevant Period. 

Despite these issues, Respondent did not begin the process of hiring a new fund 

administrator until November 2019, and did not end its relationship with Administrator A until 

March 2020, almost 13 months after it first became aware of Administrator A’s lateness in 

preparing the first Pool Statement for January 2019, and ten months after it first became aware of 

Administrator A’s inaccuracy. Accordingly, Respondent failed to establish and implement an 

adequate supervisory system, through policies and procedures, to diligently supervise 

Administrator A and thereby ensure Pool Statements were accurately prepared and distributed to 

pool participants in a timely manner. 

Respondent also failed to file its Annual Financial Statement in a timely manner. As part 

of its duties as fund administrator, Administrator A was to prepare its Annual Financial 

Statement. The Annual Financial Statement was originally due March 31, 2020. Respondent 

first sought an extension from the NFA to file the Annual Financial Statement on April 28, 2020, 

almost 30 days after it was due. The NFA granted an extension to Respondent to file the Annual 

Financial Statement by June 30, 2020. Respondent, however, filed the Annual Financial 

Statement on September 4, 2020, more than two months past the extended filing date. 

Respondent again failed to establish and implement policies and procedures to ensure that the 

Annual Financial Statement was timely filed. 

Respondent cooperated with Division staff throughout its investigation, expending 

significant time and resources to voluntarily provide Division staff with specific and complete 
4 

information relevant to the Division’s investigation. Respondent promptly met with Division 

staff on numerous occasions to review, explain and clarify the known facts about the misconduct. 

Respondent provided Division staff with a written chronology of events which included details 

regarding Respondent’s interactions with Administrator A and explanations as to when and why 

the Pool Statements were late and/or inaccurate. Respondent acknowledged its violative conduct 

and Respondent’s substantial cooperation resulted in material assistance to the Commission’s 

investigation and served to limit the time and resources expended by Division staff to investigate 

this matter. 

In addition to cooperation, Respondent also remediated. Respondent made the following 

representations concerning its remediation in connection with this matter: 

 On January 20, 2020, Respondent signed a letter of engagement with 

Administrator B to oversee, review and correct, where necessary, all of the work 

conducted by Administrator A; 

 In mid-to late March 2020, Administrator B reviewed all of the work of 

Administrator A and in April 2020, Respondent and Administrator B consulted 

with Respondent’s auditors to discuss the findings of Administrator B; 

 Respondent actively engaged with Administrator B and its auditors to identify and 

correct all known errors; 

 On April 30, 2020, Respondent requested that Administrator B reprocess and 

restate all of the incorrect NAV Calculations and Pool Reports and Administrator 

B completed this work by the end of June 2020; 

 Since the end of August 2020, Administrator B has accurately and timely 

prepared NAV calculations and Pool Reports by the end of each month; and 

 Respondent kept all of its investors informed of the inaccurate Pool Reports 

prepared by Administrator A and by July 21, 2020, Respondent redeemed all of 

its investors’ interests, except that of one remaining partner of Respondent. 

III. LEGAL DISCUSSION 

A. Failure to Provide Timely Pool Statements 

Regulation 4.7(b)(3), 17 C.F.R. § 4.7(b)(3) (2022), requires, and Regulation 4.7(b)(2), 

17 C.F.R. § 4.7(b)(2) (2018), required, an exempt CPO to distribute a statement, at least 

quarterly, to all pool participants within 30 calendar days after the last date of the applicable 

reporting period. This Pool Statement must be presented and computed in accordance with 

generally accepted accounting principles and indicate: (i) the NAV of the exempt pool as of the 

end of the reporting period; (ii) the change in NAV from the end of the previous reporting 

period; and (iii) either the NAV per outstanding participation unit in the exempt pool as of the 

end of the reporting period, or the total value of the participant's interest or share in the exempt 

pool as of the end of the reporting period. 
5 

During the Relevant Period, Respondent failed to distribute required quarterly Pool 

Statements to its pool participants by the Regulatory Deadline in violation of Regulations 

4.7(b)(3) (2022) and 4.7(b)(2) (2018). 

B. Failure to File Timely Annual Report 

Regulation 4.7(b)(4), 17 C.F.R. § 4.7(b)(4) (2022), requires, and Regulation 4.7(b)(3), 

17 C.F.R. § 4.7(b)(3) (2018), required, an exempt CPO to electronically file with the NFA and 

distribute to each pool participant an annual report that contains, at a minimum, certain financial 

information within 90 days after the end of the exempt pools' fiscal year. 

For the fiscal year 2019, Respondent failed to timely file its Annual Financial Statement 

with the NFA in violation of Regulations 4.7(b)(4) (2022) and 4.7(b)(3) (2018). 

C. Failure to Supervise Third Party Fund Administrator 

Regulation 166.3, 17 C.F.R § 166.3 (2022), requires that every Commission registrant 

“diligently supervise the handling by its partners, officers, employees and agents” of all activities 

relating to its business as a registrant. See In re FCStone, LLC, CFTC No. 15-21, 2015 WL 

2066891, at *2 (May 1, 2015) (consent order). A violation of Regulation 166.3 is demonstrated 

by showing either that: (1) the registrant’s supervisory system was generally inadequate; or (2) 

the registrant failed to perform its supervisory duties diligently. In re Gain Capital Group, LLC, 

CFTC No. 20-70, 2020 WL 5876729, at *3 (Sept. 29, 2020) (citing In re Murlas Commodities, 

CFTC No. 85-29, 1995 WL 523563, at *9 (Sept. 1, 1995)); In re GNP Commodities, Inc., CFTC 

No. 89-1, 1992 WL 201158, at *17-19 (Aug. 11, 1992) (providing that, even if an adequate 

supervisory system is in place, Regulation 166.3 can still be violated if the supervisory system is 

not diligently administered); see also In re Rosenthal Collins Grp., LLC, CFTC No. 12-18, 2012 

WL 1242406, at *6 (Apr. 12, 2012) (consent order) (respondent failed to perform supervisory 

duties diligently by not following its compliance procedures that were in place). Moreover, a 

violation of Regulation 166.3 is an independent violation for which no underling violation is 

necessary. See In re Collins, CFTC No. 94-13, 1997 WL 761927, at *10 (Dec. 10, 1997). 

A CPO may delegate the performance of certain services to a fund administrator, 

including those services delegated by DARMA in this case. See In re Tillage Commodities, 

LLC, CFTC No. 17-27, 2017 WL 4386853 at *3 (Sept. 28, 2017). However, it cannot abdicate 

its responsibilities under Regulation 166.3 and must diligently supervise the agent 

administrator’s handling of all activities relating to the CPO's business as a Commission 

registrant. Id. at *3; See, e.g., Regulation 4.7(b)(6)(D)(2), 17 C.F.R. §4.7(b)(6)(D)(2) (2022). 

Respondent failed to establish and implement an adequate supervisory system through 

policies and procedures with respect to Respondent’s reporting obligations. Due to these 

failures, Pool Statements were inaccurately prepared and distributed to pool participants after the 

Regulatory Deadline. Respondent also failed to establish and implement policies and procedures 

to ensure that the Annual Financial Statement was prepared accurately and was timely filed with 

the NFA. 

During the Relevant Period, Respondent failed to failed to diligently supervise its agent 

fund administrator’s activities in violation of Regulation 166.3. 
6 

IV. FINDINGS OF VIOLATIONS 

Based on the foregoing, the Commission finds that, during the Relevant Period, 

DARMA, LLC violated Regulations 4.7(b)(3) and (4), and 166.3, 17 C.F.R. §§ 4.7(b)(3), (4), 

166.3 (2022), and Regulation 4.7(b)(2) and (3), 17 C.F.R. § 4.7(b)(2), (3) (2018). 

V. OFFER OF SETTLEMENT 

Respondent has submitted the Offer in which it, without admitting or denying the 

findings and conclusions herein: 

A. Acknowledges service of this Order; 

B. Admits the jurisdiction of the Commission with respect to all matters set forth in this 

Order and for any action or proceeding brought or authorized by the Commission based 

on violation of or enforcement of this Order; 

C. Waives: 

1. The filing and service of a complaint and notice of hearing; 

2. A hearing; 

3. All post-hearing procedures; 

4. Judicial review by any court; 

5. Any and all objections to the participation by any member of the Commission’s 

staff in the Commission’s consideration of the Offer; 

6. Any and all claims that it may possess under the Equal Access to Justice Act, 

5 U.S.C. § 504, and 28 U.S.C. § 2412, and/or the rules promulgated by the 

Commission in conformity therewith, Part 148 of the Regulations, 17 C.F.R. 

pt. 148 (2022), relating to, or arising from, this proceeding; 

7. Any and all claims that it may possess under the Small Business Regulatory 

Enforcement Fairness Act of 1996, Pub. L. No. 104-121, tit. II, §§ 201–253, 

110 Stat. 847, 857–74 (codified as amended at 28 U.S.C. § 2412 and in scattered 

sections of 5 U.S.C. and 15 U.S.C.), relating to, or arising from, this proceeding; 

and 

8. Any claims of Double Jeopardy based on the institution of this proceeding or the 

entry in this proceeding of any order imposing a civil monetary penalty or any 

other relief, including this Order; 

D. Stipulates that the record basis on which this Order is entered shall consist solely of the 

findings contained in this Order to which Respondent has consented in the Offer; and 
7 

E. Consents, solely on the basis of the Offer, to the Commission’s entry of this Order that: 

1. Makes findings by the Commission that Respondent violated Regulations 4.7(b)(3) 

and (4) and 166.3, 17 C.F.R. §§ 4.7(b)(3), (4), 166.3 (2022), and Regulation 

4.7(b)(2) and (3), 17 C.F.R. § 4.7(b)(2), (3) (2018); 

2. Orders Respondent to cease and desist from violating Regulations 4.7(b)(3) and (4) 

and 166.3. 

3. Orders Respondent to pay a civil monetary penalty in the amount of one hundred 

fifty thousand dollars ($150,000), plus any post-judgment interest; and 

4. Orders Respondent and its successors and assigns to comply with the conditions 

and undertakings consented to in the Offer and as set forth in Part VI of this Order. 

Upon consideration, the Commission has determined to accept the Offer. 

VI. ORDER 

Accordingly, IT IS HEREBY ORDERED THAT: 

A. Respondent shall cease and desist from violating Regulations 4.7(b)(3) and (4) and 166.3, 

17 C.F.R. §§ 4.7(b)(3), (4), 166.3 (2022). 

B. Respondent shall pay a civil monetary penalty in the amount of one hundred fifty 

thousand dollars ($150,000) (“CMP Obligation”).4

 If the CMP Obligation is not paid 

immediately in full, then post-judgment interest shall accrue on the unpaid portion of the 

CMP Obligation beginning on the date of entry of this Order and shall be determined by 

using the Treasury Bill rate prevailing on the date of entry of this Order pursuant to 28 

U.S.C. § 1961. 

Respondent shall pay the CMP Obligation and any post-judgment interest by electronic 

funds transfer, U.S. postal money order, certified check, bank cashier’s check, or bank 

money order. If payment is to be made other than by electronic funds transfer, then the 

payment shall be made payable to the Commodity Futures Trading Commission and sent 

to the address below:

MMAC/ESC/AMK326

Commodity Futures Trading Commission 

6500 S. MacArthur Blvd. 

HQ Room 266 

Oklahoma City, OK 73169 

9-amz-ar-cftc@faa.gov 

 

4

 Respondent reached a prior settlement with the NFA based on the conduct described in this Order and paid a 

$30,000 penalty. See NFA Case No. 20-BCC-014. 
8 

 If payment is to be made by electronic funds transfer, Respondent shall contact Tonia 

King or her successor at the above address to receive payment instructions and shall fully 

comply with those instructions. Respondent shall accompany payment of the CMP 

Obligation with a cover letter that identifies the paying Respondent and the name and 

docket number of this proceeding. The paying Respondent shall simultaneously transmit 

copies of the cover letter and the form of payment to the Chief Financial Officer, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, D.C. 20581 and to Manal Sultan, Deputy Director, Division of 

Enforcement, Commodity Futures Trading Commission, 290 Broadway, 6th Floor, New 

York, NY 10007. 

C. Respondent and its successors and assigns shall comply with the following conditions 

and undertakings set forth in the Offer: 

 

1. Public Statements: Respondent agrees that neither it nor any of its successors and 

assigns, agents or employees under its authority or control shall take any action or 

make any public statement denying, directly or indirectly, any findings or 

conclusions in this Order or creating, or tending to create, the impression that this 

Order is without a factual basis; provided, however, that nothing in this provision 

shall affect Respondent’s: (i) testimonial obligations; or (ii) right to take legal 

positions in other proceedings to which the Commission is not a party. 

Respondent and its successors and assigns shall comply with this agreement, and 

shall undertake all steps necessary to ensure that all of its agents and/or 

employees under its authority or control understand and comply with this 

agreement. 

2. Partial Satisfaction: Respondent understands and agrees that any acceptance by 

the Commission of any partial payment of Respondent’s CMP Obligation shall 

not be deemed a waiver of its obligation to make further payments pursuant to this 

Order, or a waiver of the Commission’s right to seek to compel payment of any 

remaining balance. 

3. Change of Address/Phone: Until such time as Respondent satisfies in full its 

CMP Obligation as set forth in this Order, Respondent shall provide written 

notice to the Commission by certified mail of any change to its telephone number 

and mailing address within ten calendar days of the change. 

4. Until such time as Respondent satisfies in full its CMP Obligation, upon the 

commencement by or against Respondent of insolvency, receivership or 

bankruptcy proceedings or any other proceedings for the settlement of 

Respondent’s debts, all notices to creditors required to be furnished to the 

Commission under Title 11 of the United States Code or other applicable law with 

respect to such insolvency, receivership, bankruptcy or other proceedings, shall be 

sent to the address below: 

Secretary of the Commission 

Office of the General Counsel