Federal authorities have charged a former FINRA-registered broker and investment banker with allegedly manipulating his friends, former college classmates, and industry peers for at least $1 million in a cryptocurrency Ponzi scheme.
Rashawn Russell, 27, was charged with fraudulently investing in cryptocurrencies last week by the Attorney's Office for the Eastern District of New York .
Former Deutsche Bank investment banker faces up to 20 years in prison if found guilty. The CFTC also filed a civil lawsuit against Russell.
“Russell allegedly turned cryptocurrency investment requests into a scheme to trick a few investors into funding their lifestyle,” U.S. Attorney General Brion Pace said in a statement. “This office will continue to actively prosecute the scammers who carry out these schemes against investors in the digital asset market.”
According to court documents filed with the April 11 indictment , investigators allege that at least between November 2020 and July 2022, Russell facilitated a scheme to profit from various investors by promising that the money received from them would be used for cryptocurrency. . investments that bring significant income.
Russell asked investors to contribute to a personal digital asset trading fund called the R3 Crypto Fund. Accept contributions in bitcoin, ether and/or fiat currency.
This tells potential investors that their contribution will remain in the fund for three months. At the end of the period, Russell gives investors the option to withdraw their initial investment plus the profits generated from their trades, or roll over their investment and all profits to a new three-month funding cycle.
In some cases, Russell offered winnings as a guarantee of at least 25%, according to court documents. Russell notifies investors that they can receive a guaranteed fixed income of 25% of their deposit at the end of the term, and any profit in excess of this amount will be transferred to Russell.
Investors can also receive 80% of all profits, 20% of all profits from Russell as a management fee. Despite this, Russell guarantees that the investor's initial deposit will be returned.
According to court documents, during the scheme, Russell promised current and potential investors that the fund's transactions would be profitable, sometimes generating returns of 50% or more. In fact, investigators say, Russell took most of the investors' money and used it for his personal gain to pay off and pay off other investors in a Ponzi-like scheme.
Russell was also accused of falsifying various documents he sent to his clients in support of the scam. Court documents show that Russell sent investors a modified picture of the bank balance displayed on the bank's website to show Russell's greater liquidity. Court documents say bank photos Russell sent to clients in February 2021 show an account balance of about $355,000, while the defendant had no more than $35,000.
When another investor asked for his investment back, Russell never sent the money, but instead sent the investor a fictitious wire transfer confirmation proving that the investor's money had been returned.
Russell often made excuses when investors tried to withdraw money from the fund, court documents say, including lying that he was in the process of transferring money or that he would pay fees plus dividends in USDC - USD Coin. A stable digital currency - a wallet - is pegged to the US dollar.
Court documents say Russell was slow to respond to investors' repeated questions and eventually stopped responding altogether. With few exceptions, Russell investors do not return their investment.
Attempts by the financial planning department to contact Russell for comment were unsuccessful.
The stakes are rising as Bitcoin does its best to bounce back and financial services regulators add cryptocurrencies to their daily diet.
Days after Russell's case was filed , the Texas Securities and Exchange Commission issued a final injunction against crypto firm Nexo Capital for selling unregistered securities; The Securities and Exchange Commission has authorized crypto asset trading platform Bittrex and its founding partners to operate unregistered national stock exchanges, brokers and clearing agents.
The Securities and Exchange Commission accused Bittrex's offshore subsidiary, Bittrex Global GmbH, of failing to register as a national exchange because it had a single order book with Bittrex. Since at least 2014, Bittrex has been a platform that facilitates the buying and selling of crypto assets, which the SEC complained about are being offered and sold as securities.
From 2017 to 2022, Bittrex has earned at least $1.3 billion in investor transaction fees by acting as a broker, exchange and clearing agent without registering any of those transactions for a fee.
In a statement released on Monday in the Bittrex case, SEC Chairman Gary Gensler said the enforcement action shows that the crypto market is suffering from regulatory non-compliance, not a lack of regulatory clarity.
“According to our complaint, Bittrex and the publishers it works with are aware of the rules that apply to them, but are struggling to circumvent them by instructing applicants to “clear” the display of informational materials indicating that cryptoassets are securities.” . - He says. In addition, Bittrex allegedly failed to register and comply with US securities laws as an exchange, trailer broker, and clearing agent.
“The cosmetic changes do not change the underlying economic reality of Bittrex’s offerings and behavior. We are now holding Bittrex liable for non-compliance.”
But veteran securities attorney Bill Singer, who was not involved in either of the cases, said regulatory clarity remains an issue even as cryptocurrency lawsuits escalate.
The US government has not yet published a clear set of rules for the operation of cryptocurrency and blockchain models. In September 2022 , the White House released its first comprehensive Digital Assets "Responsible Growth" Project .
Considered sophisticated or outlandish because it existed before the word “crypto” became mechanical and is based on the same proven conspiracies that existed in the industry long before blockchain technology, Singer said.
This rationale from regulators means that more time will be needed as the expiration date approaches for final specific recommendations to regulate digital assets, he said.
“It's just an old scam. All she does is make her sexy by writing the word "cryptocurrency" there... There the guy asks you to give him cryptocurrency. You never hear about him.” – Singer They did not have much experience with FINRA's predecessor, the National Dealers Association, which acted as a regional advisor. And that guarantees you 25%." “I have been working for 40 years. I remember we had a scam in the late 90s where people were told they were being taken to a dot-com company."
He added that the Bitrex case, which has been going on for five years, angered him because, in his opinion, it was “a highway that the heads of the SEC built without a hitch.”
“What a lot of people are complaining about is that the SEC is suing when it should be regulating our rulemaking. that is, cryptocurrencies are under the jurisdiction of the CFTC, while securities and exchanges are controlled by the exchange commission.” “They introduce a new rule every two weeks. Now they are proposing to revise their proposed rules. We then contacted the Department of Justice because scammers easily discover that sticking to the word "Bitcoin" is very sexy. Commodity futures trading (CFTC) does not set strict rules... Where lawyers like the word penumbra, that's where we are.”