Washington, D.C. — Today, the Commodity Futures Trading Commission (CFTC) announced that the Honorable John Koeltl of the U.S. District Court for the Southern District of New York entered a Consent Order and Permanent Injunction, Civil Monetary Penalty, and Other Equitable Relief Against Defendant Jimmy Gale Watson, Jr. of Dallas, Texas. This case marks the first enforcement action by the Commission alleging use of a traditional fraud scheme known as “pump-and-dump” in digital asset markets. In a pump-and-dump scheme, fraudsters spread false information about an asset in order to “pump-up” investor interest and drive up the price. The fraudsters then liquidate or sell the targeted asset, dumping the asset at the artificially inflated price before the price inevitably declines.

Ensuring appropriate customer protections and enforcing against fraudulent schemes like this one are core principles deeply embedded in the agency’s legal and regulatory framework, history, and ethos. Such fraudulent and manipulative schemes are particularly egregious when they target the most vulnerable market participants, here hardworking retail investors. With the rise in popularity of digital assets, many retail investors are lured by bad actors promising quick riches. Adding to these concerns, all-too-often these vulnerable investors rely on online communication platforms and chatrooms that serve as a gathering place for cryptocurrency enthusiasts and self-anointed (unregistered and often uncredentialed) investment advisors.

In 2018, the CFTC warned of the dangers of these types of schemes. The CFTC will continue to be vigilant in surveilling the digital assets ecosystem for fraud or manipulation that falls within the ambit of its regulatory authority. In this case, the Commission applied its broad anti-fraud and anti-manipulation authority to protect investors from further losses and to obtain appropriate sanctions against Defendant Watson. Specifically, the consent order requires Watson to disgorge all profits from the scheme and orders him to pay a civil monetary penalty in the same amount. In addition, Watson is permanently banned from trading in the derivatives markets and banned from registering with the CFTC. 

I am grateful for the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Securities Exchange Commission, which conducted separate and parallel investigations.

I would also like to commend the hard work and effort of the Division of Enforcement staff members who brought this matter to a resolution, including, David M. Oakland, Christopher Giglio, Alejandra de Urioste, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan as well as former Enforcement staff member Gates Hurand. The Division’s Digital Assets Task Force assisted with this matter.