CFTC Charges Crypto Firm and CEO with Operating "Ponzi" Scheme
The CFTC charged a cryptocurrency trading firm and its CEO with engaging in a "Ponzi-like" scheme.
According to a Complaint filed in the Eastern District of New York, the CFTC alleged that the firm, its CEO and others acting on the firm's behalf made false or misleading statements and distributed materially misleading information to solicit investors to deposit cryptocurrencies in exchange for guaranteed interest that the defendants had "[no] reason to believe" was achievable. The CFTC stated that the firm did not conduct any trades involving the assets and many investors did not receive any profits, or any part of their original principal or the corresponding assets.
The CFTC alleged that the firm and its CEO violated anti-fraud provisions in CEA Section 6(c)(1) and CFTC Rule 180.1 ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices"). The CFTC is seeking relief in the form of a permanent injunction, disgorgement of ill-gotten gains, monetary penalties and any other relief the Court deems appropriate.
Commentary
For those keeping track, in this case the CFTC states that Bitcoin and Ether are "commodities" under CEA Section 1a(9) and the CFTC appears to rely on its anti-fraud enforcement authority for commodity spot markets in bringing this case. As a result, the CFTC does not attempt to characterize the nature of the promised contractual schemes in this case - e.g., whether the promised interest-bearing scheme is (1) a CFTC-regulated derivative with BTC or ETH as the underlyer, (2) a security regulated by the SEC, (3) both, or (4) neither.