CFTC Files Suit Against Cryptocurrency Companies

The Commodity Futures Trading Commission (CFTC) filed a securities fraud complaint against Fintech Investment Group, Inc. and Compcoin, LLC, on April 16, alleging that the companies made false promises about the return rates of their trading algorithm. This case is being held in the Orlando Division of the Florida Middle District Court before Judge Wendy W. Berger.

The suit revolves around Compcoin, a cryptocurrency, and Fintech’s “allegedly proprietary foreign exchange (‘forex’) trading algorithm known as ART.” According to the complaint, Compcoin is a “blockchain-based Financial Investment Coin” whose value would be measured “through the performance (actual and perceived future sustainability) of its automated, algorithmic trading platform,” called ART. The defendants’ customers were allegedly required to purchase Compcoin to gain access to ART.

Customers were solicited to purchase Compcoin through press releases and posts on Compcoin, LLC’s website. Some of its statements were allegedly misleading, including claims that Compcoin could be used to access ART and the projection of a high return rate. The complaint says that before Compcoin was purchased by anyone, “Defendants knew that Compcoin could not be used by customers to gain access to ART because Fintech had not been approved to advise customers as to trading forex using ART.” It further alleges that the defendants falsely advertised “that ART would deliver high rates of return” and failed to properly disclose that its forex trading performance was based on simulated models rather than actual trading results.

The CFTC is an independent agency of the U.S. government that regulates the U.S. derivatives markets, including futures, swaps, and certain options. The agency ruled in 2015 that Bitcoin and other cryptocurrencies classify as commodities. It has recently made expanded efforts to prosecute fraud and misappropriation in the digital asset markets.

As a result of the alleged securities fraud, the CFTC seeks an order of permanent injunction prohibiting the defendants from continuing any trade and “from entering into any transactions involving commodity interests.”