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Financial Services Law Insights and Observations

CFTC alleges crypto promoter’s digital asset trading scheme violates CEA

Securities Digital Assets CFTC Enforcement Cryptocurrency Commodity Exchange Act


On August 12, the CFTC filed charges against an individual and his two Ohio-based cryptocurrency promotion companies for allegedly violating the Commodity Exchange Act and Commission regulations by soliciting more than $1 million in a digital asset trading scheme. The complaint alleged that the defendants made false and misleading statements in their solicitations to customers, including profit guarantees and claims concerning the individual defendant’s supposed success as a digital asset trader. According to the complaint, customers were guaranteed that they would not lose their initial investment and would be able to withdraw their initial investment and alleged profits at any time; however, defendants allegedly refused to allow existing customers to withdraw these funds, stopped communicating with customers, and manufactured excuses as to why funds were not returned. The complaint also contended, among other things, that the defendants omitted material facts, including that the defendants “misappropriated customer funds to pay purported profits to other customers in a manner akin to a Ponzi scheme,” misappropriated customer funds to pay for the individual defendant’s lifestyle, and commingled customer funds with personal bank and digital asset trading accounts. The CFTC seeks: (i) restitution for defrauded investors; (ii) disgorgement; (iii) civil monetary penalties; (iv) permanent registration and trading bans; and (v) a permanent injunction from future violations.