I concur in the Commodity Futures Trading Commission’s (CFTC) enforcement action against a promoter of a fraudulent cryptocurrency scheme.  While I support the CFTC’s enforcement action against this crypto-fraud promoter, and support a penalty and permanent trading and registration bans, I do not support the CFTC continuing its routine practice of allowing a defendant to settle without admitting to his illegal actions.

The Commission should do all that it can within its existing authority to stop crypto-fraud schemes and to bring justice and accountability when we find crypto-fraud schemes.  Requiring defendant admissions in CFTC enforcement cases serves the critical public interest goals of federal law enforcement programs—justice, accountability, and deterrence.[1]  I recently proposed the Heightened Enforcement Accountability and Transparency test (HEAT Test) to assist the Commission in assessing whether specific cases demand heightened justice for victims, heightened accountability, and heightened deterrence that would accompany defendant admissions.  This would include cases with one or more of the following factors:

• Egregious conduct;
• The presence of a criminal scheme;
• Significant harm or risks of harm to investors and/or market participants;
• Significant harm or risks of harm to market integrity;
• A recidivist defendant;
• Obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or
• The need to send a pronounced message about particular conduct or practices.

Several of those factors exist in this case.  There was egregious conduct with significant harm to investors and market integrity.  The defendant promoter, who used the alias “David Peterson” (an alias allegedly created by the developers) to conceal his true name, Jeremy Rounsville, touted a cryptocurrency fraud scheme perpetrated by persons residing outside of the United States.  The defendant held himself out as the CEO of the protocol Arbitraging.co (Arbitraging).  He touted that Arbitraging would manage trading of cryptocurrencies through a supposed bot if customers created an account and transferred ether to an Ethereum blockchain address controlled by Arbitraging.  The scheme falsely promised immediate profits through arbitrage trading by “buying a coin/token in one exchange at a low price and instantly selling it in another exchange for a higher price to immediately lock in a profit.”  The defendant knew that there were no automated trades executed on behalf of customers.  Investors lost everything when they were unable to withdraw their funds.  That investor harm, unfortunately, is likely to persist.  It seems unlikely that investors will recover their money.

The promoter’s egregious actions and misrepresentations were instrumental to the fraud.  Without the defendant’s active solicitations and false claims, investors would not have had their money stolen.  The defendant solicited investors through multiple avenues:  in person, at a Las Vegas event called “Token Tank,” in YouTube videos, and in newsletters, Telegram channels, and emails.  The defendant’s extensive false marketing and material misrepresentations about the scheme lured investors into the scheme.  The whole time, he knew that there were no automated trades executed for investors.

Finally, applying the last factor of the HEAT test, there also is a significant need for the CFTC to send a pronounced message about the marketing and promotional practices in the crypto industry, an industry that has a significant amount of hype.  I have repeatedly expressed concerns about retail investor crypto fraud.  The U.S. Federal Trade Commission reported that since January 2021, “more than 46,000 people have reported losing over $1 billion in crypto to scams—that’s about one out of every four dollars reported lost [to fraud].”[2]  It is critically important for the CFTC to demand admissions of wrongdoing for promoters who contribute to crypto-related fraud schemes—fraud that would not be possible without the active participation of promoters who generate hype around cryptocurrencies.

Promoters of fraudulent crypto schemes should not get a free pass from admitting their wrongdoing; they must be held publicly accountable.  Victims deserve the full measure of justice that comes from the defendant admitting how he hurt them and that his actions were wrong.  Finally, with the Commission seeing an increase in crypto-related complaints, we should do all that we can to stop crypto fraud in its tracks.  Requiring the defendant to admit to his wrongdoing helps deter other crypto-fraud schemes from promoting fraud schemes and victimizing retail investors.