The Commodity Futures Trading Commission (CFTC) announced yesterday that it has obtained a consent order against Digitrex CEO John Doe, requiring him to pay more than $15 million in civil monetary penalties and restitution for fraudulently soliciting and misappropriating funds from customers in connection with a digital asset trading platform.
According to the CFTC, Doe and his company, Digitrex, operated an online platform that purported to offer customers the ability to trade futures contracts on various digital assets, such as Bitcoin, Ethereum, and Litecoin. However, the CFTC alleged that Doe and Digitrex made false and misleading representations to customers about the platform’s features, performance, and regulatory status.
For example, Doe and Digitrex claimed that the platform was registered with the CFTC and that it used a sophisticated algorithm to match buyers and sellers of futures contracts. In reality, the CFTC said, the platform was not registered with the CFTC and did not have any algorithm or matching engine. Instead, Doe and Digitrex simply took customers’ funds and used them for their own personal expenses or transferred them to third parties.
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The CFTC also alleged that Doe and Digitrex failed to disclose to customers the risks associated with trading digital asset futures contracts, such as volatility, liquidity, and cybersecurity issues. Moreover, the CFTC said, Doe and Digitrex failed to provide customers with any account statements, trade confirmations, or customer support. As a result, customers lost most or all of their funds and were unable to withdraw their money from the platform.
The consent order, entered by the U.S. District Court for the Southern District of New York, permanently enjoins Doe and Digitrex from engaging in any further violations of the Commodity Exchange Act and CFTC regulations. The order also requires Doe to pay $10 million in civil monetary penalties and $5.3 million in restitution to defrauded customers. The order also imposes permanent trading and registration bans on Doe and Digitrex.
The CFTC’s Director of Enforcement, James McDonald, commented on the case:
This case demonstrates the CFTC’s commitment to protecting customers from fraud and abuse in the rapidly evolving digital asset market. We will continue to work closely with our regulatory partners to ensure that this market is free from fraudsters who seek to exploit the public’s interest in these new and innovative products.