CFTC Charges Individuals in Digital Asset Pump-and-Dump Scheme
Commentary by Steven Lofchie
The CFTC charged two individuals, including well-known technology entrepreneur John McAfee, with engaging in a "pump-and-dump" scheme involving digital assets. It is the first ever enforcement action for a manipulative scheme involving digital assets.
In a Complaint filed in the U.S. District Court for the Southern District of New York, the CFTC alleged that the individuals deceptively touted several digital assets as "valuable long-term investment(s)" on social media. In anticipation of sharp price increases in the assets, the individuals secretly accumulated positions in the assets. Following a price spike resulting from one of the individuals' endorsements of the assets, the individuals secretly sold off the majority of their holdings in the assets and made profits in excess of $2 million.
As a result of their conduct, the CFTC charged the individuals with violations of Sections 6(c)(1), 6(c)(3) and 9(a)(2) of the CEA and CFTC Rules 180.1 ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices") and 180.2 ("Prohibition on price manipulation").
The CFTC is seeking (i) disgorgement of ill-gotten gains, (ii) civil money penalties, (iii) permanent trading and registration bans and (iv) a permanent injunction against future violations.
Commentary
Notably, the scheme did not involve commodity derivatives. The CFTC's enforcement action was based on the agency's authority to regulate improper conduct as to commodities.