The Commodity Futures Trading Commission (Commission or CFTC) filed a civil enforcement action in the U.S. District Court for the Central District of California against California resident Cunwen Zhu and his California-based company Justby International Auctions (Justby) (Zhu and Justby, together, Defendants).[1]  Defendants used a type of romance fraud known as a “Pig Butchering” scheme to defraud customers through digital asset and foreign currency exchange (forex) solicitations.  In a Pig Butchering scheme, the fraudsters cultivate a friendly or romantic relationship with a potential customer, and “fatten” them up with falsehoods, before soliciting the customer to participate in a fraudulent financial opportunity, in this case, fraudulent digital asset and forex trading.  The complaint alleges that from approximately April 2021 through March 2022, Zhu and Justby accepted and misappropriated over $1.3 million from at least 29 customers as part of this scheme.

Defendants are charged with fraudulently soliciting funds from customers for the purpose of trading forex or digital assets, and then misappropriating those funds.  Generally, the scheme followed a similar pattern:  solicitors contacted potential customers via social media platforms and established a rapport through frequent communication, including sharing pictures themselves in expenses locales or with expensive items, such as luxury cars.  After building a relationship and gaining the trust of the customers, the solicitors would claim they were earning huge profits trading forex and/or digital assets, based on inside information.  They would then offer to share this knowledge to assist the consumer with trades by asking the consumer to download a fraudulent trading app and set up a “trading account.”  At this point, Defendants would have customers wire funds to various accounts associated with Justby, where funds would go on to be misappropriated and used for other purposes.  All the while, the customers’ “trading accounts” would show fictitious profits and trades, but, in reality, no trading was taking place.

This is a first-of-its-kind action in a number of ways, but, there is no reason to believe that this will be the last pig butchering case.  As I have stated previously, these types of schemes and others that target vulnerable investors are not uncommon and, in fact, we see consistent if not increasing evidence of such schemes.[2]  Schemes like this one are especially problematic because they target people who are seeking connection and are susceptible to trust those that they believe they’ve connected with.  The Commission has released a number of advisories warning against frauds of this nature that are seen on online dating and social media platforms.[3]  I highly recommend that customers use caution before sending funds to any person or third-party platforms as a result of online relationships.

I thank the Division of Enforcement staff, including Dmitriy Vilenskiy, Karen Kenmotsu, Chrystal Gonnella, Kelly Makimoto-Murphy, Traci Rodriguez and Paul G. Hayeck, as well as the Romance Investment Fraud Task Force, for their efforts in bringing this case.