International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, February 18, 2020

CFTC Charges Company and its Principal in $33 Million Fraudulent Digital Asset Scheme

The Commodity Futures Trading Commission filed a civil enforcement action against defendants Q3 Holdings, LLC and Q3 I, LP and their principal, Michael Ackerman. The complaint charges the defendants with fraudulently soliciting over $33 million to purportedly trade digital assets and misappropriating a substantial portion of that total. filing here

“This case underscores, once again, that the Commission will continue working with our regulatory partners to ensure the integrity of our markets, including those involving digital assets,” said CFTC Director of Enforcement James McDonald. “Rooting out misconduct is essential to furthering the responsible development of these innovative financial products.”

The complaint specifically alleges that from at least August 2017 through December 2019 defendants operated a fraudulent scheme in which they solicited funds to purportedly trade digital assets and then misappropriated those funds. The defendants engaged in numerous misrepresentations that included making claims of (i) earning customers .5% in daily trading profits and roughly 15% per month, (ii) using algorithms that generated winning trades 75% of the time, and (iii) utilizing security measures that made it impossible for any principal to transfer or withdraw customer funds.

In reality, the defendants sent only a small portion of the customers’ funds to digital asset trading accounts, did not earn the trading profits they claimed, and misappropriated funds. To conceal the fraud, the defendants provided customers with false accounting statements, newsletters containing false trading returns, and fictitious screenshots reflecting the amount of money under Q3’s management.

Related Criminal and Civil Actions

Today, in separate actions, the U.S. Attorney’s Office for the Southern District of New York announced the arrest of Ackerman on one count of wire fraud and the Securities and Exchange Commission announced the filing of a multi-count complaint against Ackerman and Q3 alleging securities fraud and misappropriation.

The Division of Enforcement acknowledges and thanks the staff of the U.S. Attorney’s Office for the Southern District of New York, Homeland Security Investigations’ El Dorado Task Force, the Federal Bureau of Investigation, and the Securities and Exchange Commission for their assistance.

The Division of Enforcement staff members responsible for this case are Dmitriy Vilenskiy, Luke Marsh, Jason Gizzarelli, and Paul Hayeck.

https://lawprofessors.typepad.com/intfinlaw/2020/02/cftc-charges-company-and-its-principal-in-33-million-fraudulent-digital-asset-scheme.html

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