CFTC Claims Crypto Assets Are Commodities In Lawsuit Against Former Deutsche Bank Investment Banker

The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Rashawn Russell, a former Deutsche Bank investment banker, in the US District Court for the Eastern District of New York.

The filing alleges that Russell fraudulently solicited retail investors to invest in a digital asset trading fund. He is also accused of defrauding investors of nearly $1 million in the process. He is charged with one count of wire fraud by the CFTC.

The trial

According to the press release, Russell asked retail investors to contribute Bitcoin, Ether and fiat currency to invest in the alleged proprietary digital asset trading fund from November 2020 to July 2022. He allegedly guaranteed that investors would not suffer any losses. In some cases, the banker also promised a minimum 25% return on investment.

The complaint accused Russell of knowingly and/or recklessly making false and misleading statements regarding the structure, size and performance of the fund. He is also accused of making false promises to pay withdrawal requests, as well as to compensate investors in USDC.

The funds were then used to pay for Russell’s personal expenses, entities related to gambling activities, as well as Ponzi-like payments to current investors.

In the lawsuit against the individual, the commodities regulator has sought back pay, disgorgement, civil monetary penalties and permanent trading and registration bans, in addition to a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

CFTC Director of Enforcement Ian McGinley was quoted as saying:

“As today’s action demonstrates, the CFTC is relentless in holding bad actors accountable and protecting retail investors from fraud in the digital asset space.”

Contrasting views of the SEC and CFTC

The United States Securities and Exchange Commission has been adamant that certain crypto assets are securities. In contrast, the CFTC has reinforced that Bitcoin and Ether are commodities in the latest crypto fraud and misappropriation lawsuit.

“Certain digital assets, such as bitcoin, ether, and USDC, fall within the definition of a ‘commodity’ under section 1a(9) of the Act, 7 USC §1a(9), and contracts for the sale of these are subject to the prohibitions in section 6 (c)(1) of the Act, 7 USC § 9(1), and Regulation 180.1, 17 CFR § 180.1 (2022).”

The claim comes a month after CFTC Chairman Rostin Behnam stated that Ether and stablecoins should be treated as commodities, a view different from that of SEC Chairman Gary Gensler, who previously argued that every crypto asset with the exception of Bitcoin is likely to be a security, and thus subject to his agency’s supervision.

The lawsuit also highlighted the continued lack of consensus among the two agencies that leaves open the question of how regulators such as the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation view the asset class.