The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Rashawn Russell, a former Deutsche Bank investment banker, in the US District Court for the Eastern District of New York.
The filing alleges that Russell fraudulently solicited retail investors to invest in a digital asset trading fund. He is also being accused of defrauding investors of nearly $1 million in the process. He is being charged with one count of wire fraud by the CFTC.
The Lawsuit
According to the press release, Russell asked retail investors to contribute Bitcoin, Ether, and fiat currency to invest in his purported proprietary digital assets trading fund from November 2020 through July 2022. He allegedly guaranteed that investors would not sustain any losses. In some cases, the banker also promised a minimum 25% return on investment.
The complaint charged Russell with intentionally and/or recklessly making false and misleading statements regarding the structure, size, and performance of the fund. He is also accused of making false promises to pay withdrawal requests, as well as to compensate investors in USDC.
The funds were then used to pay for Russell’s personal expenses, entities tied to gambling activities, as well as Ponzi-like payments to current investors.
In the litigation against the individual, the commodities regulator has sought restitution, disgorgement, civil monetary penalties, and permanent trading and registration bans, in addition to a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
CFTC’s Director of Enforcement Ian McGinley was quoted saying,
“As today’s action demonstrates, the CFTC is unrelenting in holding bad actors accountable and protecting retail investors from fraud in the digital asset space.”
Contrasting Views by SEC and CFTC
The United States Securities and Exchange Commission has been adamant about certain crypto assets being securities. Contrastingly, the CFTC has reinforced that Bitcoin and Ether are commodities in the latest crypto fraud and misappropriation lawsuit.
“Certain digital assets, such as bitcoin, ether, and USDC, are encompassed in the definition of a “commodity” under Section 1a(9) of the Act, 7 U.S.C. §1a(9), and contracts for their sale are subject to the prohibitions of Section 6(c)(1) of the Act, 7 U.S.C. § 9(1), and Regulation 180.1, 17 C.F.R. § 180.1 (2022).”
The assertion comes a month after the CFTC Chair Rostin Behnam stated that Ether and stablecoins should be treated as commodities, a different view from that of SEC Chair Gary Gensler, who previously claimed that every crypto-asset with the exception of Bitcoin is likely a security, and thus subject to his agency’s oversight.
The lawsuit also highlighted the continued lack of consensus among the two agencies that leaves open the question of how regulators such as the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation view the asset class.
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