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CFTC Asserts Cryptocurrency Assets Qualify as Commodities in Legal Action Against Former Deutsche Bank Investment Banker
The Commodity Futures Trading Commission (CFTC) has initiated a civil enforcement action against Rashawn Russell, a former investment banker at Deutsche Bank, in the US District Court for the Eastern District of New York.
The complaint claims that Russell deceitfully solicited retail investors to contribute to a digital asset trading fund. He is also accused of defrauding investors of nearly $1 million during this process. The CFTC has charged him with one count of wire fraud.
The Lawsuit
As stated in the press release, Russell solicited retail investors to invest Bitcoin, Ether, and fiat currency into his alleged proprietary digital assets trading fund from November 2020 to July 2022. He purportedly assured investors that they would not incur any losses. In some instances, he also guaranteed a minimum return of 25% on their investments.
The complaint alleges that Russell intentionally and/or recklessly made false and misleading claims regarding the fund’s structure, size, and performance. He is further accused of making false assurances to fulfill withdrawal requests and to reimburse investors in USDC.
The funds were reportedly utilized to cover Russell’s personal expenses, entities associated with gambling activities, and Ponzi-like payments to existing investors.
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In the case against Russell, the commodities regulator is seeking restitution, disgorgement, civil monetary penalties, and permanent bans on trading and registration, along with a permanent injunction against any future violations of the Commodity Exchange Act (CEA) and CFTC regulations.
CFTC’s Director of Enforcement Ian McGinley was quoted stating,
“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 firm in its stance that certain crypto assets qualify as securities. In contrast, the CFTC has reiterated that Bitcoin and Ether are classified as commodities in the recent 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).”
This assertion follows a month after CFTC Chair Rostin Behnam indicated that Ether and stablecoins should be regarded as commodities, differing from SEC Chair Gary Gensler’s previous assertion that all crypto-assets, except Bitcoin, are likely securities and thus fall under his agency’s jurisdiction.
The lawsuit also underscored the ongoing lack of agreement between the two agencies, raising questions about how regulators such as the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation perceive the asset class.
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