CFTC charges ‘crypto club’ Q3 and its Principal in USD33m over fraudulent digital asset scheme

The Commodity Futures Trading Commission has filed a civil enforcement action against defendants Q3 Holdings, and Q3 I, and their principal, Michael Ackerman for fraudulently soliciting over USD33 million to purportedly trade digital assets and misappropriating a substantial portion of the funds raised.

“This case underscores, once again, that the Commission will continue working with our regulatory partners to ensure the integrity of our markets, including those involving digital assets,” says CFTC Director of Enforcement James McDonald. “Rooting out misconduct is essential to furthering the responsible development of these innovative financial products.”

The complaint specifically alleges that from at least August 2017 through December 2019 defendants operated a fraudulent scheme in which they solicited funds to purportedly trade digital assets and then misappropriated those funds. The defendants engaged in numerous misrepresentations that included making claims of earning customers 0.5 per cent in daily trading profits and roughly 15 per cent per month, using algorithms that generated winning trades 75 per cent of the time, and utilising security measures that made it impossible for any principal to transfer or withdraw customer funds.

In reality, the CFTC says defendants sent only a small portion of the customers’ funds to digital asset trading accounts, did not earn the trading profits they claimed, and misappropriated funds. To conceal the fraud, the defendants then provided customers with false accounting statements, newsletters containing false trading returns, and fictitious screenshots reflecting the amount of money under Q3’s management.

In separate actions, the US Attorney’s Office for the Southern District of New York has arrested Ackerman on one count of wire fraud and the Securities and Exchange Commission has filed a multi-count complaint against Ackerman and Q3 alleging securities fraud and misappropriation.