`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF FLORIDA
`
`
`COMMODITY FUTURES TRADING
`COMMISSION,
`
`
`Plaintiff,
`
`
`
`FINTECH INVESTMENT GROUP, INC.,
`COMPCOIN LLC and ALAN FRIEDLAND,
` Defendants.
`
`v.
`
`
`
`CIVIL ACTION NO: 20-cv-652
`
`COMPLAINT FOR PERMANENT
`INJUNCTION, CIVIL MONETARY
`PENALTIES, AND OTHER ANCILLARY
`AND EQUITABLE RELIEF
`
`
`
` JURY TRIAL DEMANDED
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`Plaintiff, Commodity Futures Trading Commission (“Commission” or “CFTC”), by its
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`
`
`attorneys, alleges as follows:
`
`
`
`I.
`
`SUMMARY
`
`1.
`
`From at least 2016 through 2018 (the “Relevant Period”), Defendant Alan
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`Friedland (“Friedland”) and the companies he controlled, Defendant Fintech Investment Group,
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`Inc. (“Fintech”) and Defendant Compcoin LLC (“Compcoin LLC”) (collectively
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`“Defendants”), fraudulently solicited customers and prospective customers to purchase the
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`digital asset known as Compcoin (“Compcoin”), falsely promising that Compcoin would allow
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`customers to gain access to Fintech’s allegedly proprietary foreign exchange (“forex”) trading
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`algorithm known as ART and falsely advertising that ART would deliver high rates of return.
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`2.
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`In marketing Compcoin, Defendants made untrue and materially misleading
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`representations about the use and primary function of Compcoin and the performance of ART.
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`3.
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`Significantly, despite Defendants’ knowledge that no customer could lawfully
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`utilize ART unless and until Defendants obtained approval of their risk disclosures from the
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`National Futures Association (“NFA”) to solicit customers as required by CFTC Regulations
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`and NFA rules, Defendants sold Compcoin and raised over $1.6 million on the premise that
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`ART “was ready for release on the open market” and that “ART’s high success rate at
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`predicting USD/EUR [i.e., U.S. dollar/euro] forex trades, coupled with the high rate of return
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`from these trades, will stimulate demand among investors and forex traders to purchase and use
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`Compcoin- specifically to gain access to ART.”
`
`4.
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`Instead of gaining access to ART’s high success rate at predicting USD/EUR
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`forex trades and high rate of return from the trades as promised, purchasers of Compcoin were
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`left with a valueless asset. The NFA never approved Fintech’s risk disclosure statements. The
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`purchasers of Compcoin never gained access to ART. Indeed, Compcoin was eventually
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`delisted by all digital asset exchanges and is now worthless.
`
`5.
`
`Defendants solicited customers to purchase Compcoin through various means,
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`including a website, written solicitation materials, and verbal communications, that (i) falsely
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`represented the use and function of Compcoin, (ii) falsely claimed that Compcoin would grant
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`customers access to a forex trading algorithm called ART developed by Fintech, (iii) failed to
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`disclose that Fintech was not approved to advise customers on trading forex using ART and
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`could not trade forex for customers using ART until and unless it was approved to do such
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`trading, and (iv) failed to include a disclosure, as required by CFTC Regulation, that Fintech
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`and ART’s forex performance results were based largely or entirely on simulated or
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`hypothetical performance and not actual trading results.
`
`6.
`
`Through this fraudulent marketing and solicitation of ART, Defendants Fintech
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`and Friedland have engaged, are engaging, or are about to engage in acts and practices which
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`violate the Commodity Exchange Act (“Act”), including Sections 4b(a)(2)(A)-(C), 4o(1)(A),
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`4o(1)(B), and 6(c) of the Act, 7 U.S.C. §§ 6b(a)(2)(A)-(C), 6o(1)(A), (B), 9(1) (2018) and
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`Commission Regulations (“Regulations”) 4.41(a) and (b), 5.2(b)(1)-(3), and 180.1, 17 C.F.R.
`
`
`
`2
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`§§ 4.41(a), (b), 5.2(b)(1)-(3), 180.1 (2019), and Defendant Compcoin LLC has engaged, is
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`engaging, or is about to engage in acts and practices which violate the Act and Regulations,
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`including 7 U.S.C. §§ 4b(a)(2)(A)-(C) and 9(1) and 17 C.F.R. §§ 180.1, 4.41(b), and 5.2(b)(1)-
`
`(3), and aiding and abetting Defendants Fintech’s and Friedland’s violations of 7 U.S.C.
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`§§ 6o(1)(A) and (B), and 17 C.F.R. § 4.41(a).
`
`7.
`
`Unless restrained and enjoined by this Court, Defendants are likely to
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`continue to engage in the acts and practices alleged in this Complaint, or in similar acts and
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`practices. Accordingly, the CFTC brings this action pursuant to Section 6c of the Act,
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`7 U.S.C. § 13a-l (2018), to enjoin Defendants’ unlawful acts and practices and to compel
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`their compliance with the Act and the Regulations. In addition, the Commission seeks
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`restitution, civil monetary penalties, permanent trading and registration bans, and such
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`other statutory, injunctive, or equitable relief as this Court may deem necessary and
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`appropriate.
`
`II.
`Jurisdiction. This Court possesses jurisdiction over this action under 28 U.S.C.
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`JURISDICTION AND VENUE
`
`8.
`
`§ 1331 (2018) (codifying federal question jurisdiction) and 28 U.S.C. § 1345 (2018) (providing
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`that U.S. district courts have original jurisdiction over civil actions commenced by the United
`
`States or by any agency expressly authorized to sue by Act of Congress). In addition, Section
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`6c of the Act, 7 U.S.C. § 13a-1 (2018), provides that the Commission may bring actions for
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`injunctive relief or to enforce compliance with the Act in the proper district court of the United
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`States whenever it shall appear to the Commission that such person has engaged, is engaging, or
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`is about to engage in any act or practice constituting a violation of the Act or any rule,
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`
`
`3
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`regulation, or order thereunder. The Commission has jurisdiction over the forex solicitations
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`and transactions at issue pursuant to Section 2(c)(2)(C) of the Act, 7 U.S.C. § 2(c)(2)(C) (2018).
`
`9.
`
`Venue. Venue lies properly in this District pursuant to 7 U.S.C. § 13a-1(e),
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`because Defendants transacted business in this District and certain transactions, acts, practices,
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`and courses of business alleged in this Complaint occurred within this District.
`
`III. THE PARTIES
`Plaintiff Commodity Futures Trading Commission is an independent federal
`
`10.
`
`regulatory agency charged by Congress with the administration and enforcement of the Act and
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`the Regulations promulgated thereunder. The Commission maintains its principal office at
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`1155 21st Street NW, Washington, DC 20581.
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`11.
`
`Defendant Alan Friedland is the founder and sole owner of Fintech and
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`Compcoin LLC. During the Relevant Period, Friedland controlled and directed the activities of
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`Fintech and Compcoin LLC. Friedland was an officer, employee, and agent of Fintech, and in
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`those capacities he solicited Fintech customers’ and prospective customers’ discretionary
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`accounts. Upon information and belief, Friedland currently resides in or around Winter Park
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`and/or Orlando, Florida. Friedland is the listed Principal of Fintech and is registered with the
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`Commission as an associated person thereof.
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`12.
`
`Defendant Fintech Investment Group, Inc. was a Florida company during the
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`Relevant Period and used as a mailing address 100 E. New York Ave, Suite 330, Deland, FL
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`32724. Fintech was established as a corporation on March 29, 2016, and was dissolved on
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`September 27, 2019. At all times since 2016, Fintech has been registered with the Commission
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`as a commodity trading advisor.
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`
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`4
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`13.
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`Defendant Compcoin LLC was a Florida limited liability company during the
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`Relevant Period and used as a mailing address 100 E. New York Ave, Suite 335, Deland, FL
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`32724. Compcoin LLC was formed as a limited liability company on June 4, 2015, and
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`dissolved on September 27, 2019. Compcoin LLC has never been registered with the
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`Commission.
`
`IV.
`
`STATUTORY AND REGULATORY BACKGROUND
`
`A.
`
`Forex Fraud
`
`14.
`
`Section 4b(a)(2)(A)-(C) of the Act, 7 U.S.C. § 6b(a)(2)(A)-(C) (2018), in part,
`
`makes it unlawful for any person to: (A) cheat or defraud or attempt to cheat or defraud another
`
`person, (B) willfully make a false report or statement to another person, or (C) willfully deceive
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`or attempt to deceive another person by any means whatsoever in connection with a contract of
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`sale of a commodity for future delivery.
`
`15.
`
`Section 2(c)(2)(C)(iv) of the Act, 7 U.S.C. § 2(c)(2)(C)(iv) (2018), makes retail
`
`forex subject to Section 4b of the Act “as if the agreement, contract, or transaction were a
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`contract of sale of a commodity for future delivery.”
`
`16.
`
`Regulation 5.2(b)(1)-(3), 17 C.F.R. § 5.2(b)(l)-(3) (2019), makes it unlawful for
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`any person, by use of the mails or any means or instrumentality of interstate commerce, to:
`
`(1) cheat or defraud or attempt to cheat or defraud another person, (2) willfully make a false
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`report or statement to another person, or (3) willfully deceive or attempt to deceive another
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`person by any means whatsoever in connection with any forex transaction.
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`
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`5
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`B.
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`Fraud by a Commodity Trading Advisor
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`17.
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`Section 4o(1) of the Act, 7 U.S.C. § 6o(1) (2018), provides that it shall be
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`unlawful for a commodity trading advisor (“CTA”)1 or an associated person of a CTA, by use
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`of the mails or any means or instrumentality of interstate commerce, directly or indirectly: (A)
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`to employ any device, scheme, or artifice to defraud any client or participant or prospective
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`client or participant; or (B) to engage in any transaction, practice, or course of business which
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`operates as a fraud or deceit upon any client or participant or prospective client or participant.
`
`18.
`
`Pursuant to Section 2(c)(2)(C)(ii)(I) of the Act, 7 U.S.C. § 2(c)(2)(C)(ii)(I)
`
`(2018), “agreements, contracts, or transactions described in [Section 2(c)(2)(C)(i) of the Act],”
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`including retail forex transactions offered on a margined or leveraged basis to persons who are
`
`not eligible contract participants, “shall be subject to” provisions including Section 4o(1) of the
`
`Act, 7 U.S.C. § 6o(1).
`
`19.
`
`Regulation 4.41(a), 17 C.F.R. § 4.41(a) (2019), provides, in relevant part, that no
`
`CTA, or principal of a CTA, may advertise in a manner which: (A) employs any device, scheme
`
`or artifice to defraud any participant or client or prospective participant or client; or
`
`(B) involves any transaction, practice or course of business which operates as a fraud or deceit
`
`upon any participant or client or any prospective participant or client.
`
`20.
`
`Regulation 4.41(b), 17 C.F.R. § 4.41(b) (2019), provides that no person may
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`present the performance of any simulated or hypothetical commodity interest account,
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`transaction in a commodity interest or series of transactions in a commodity interest of a CTA,
`
`or any principal thereof, unless such performance is accompanied by the following statement:
`
`
`1 A CTA is a person who, for compensation or profit, engages in the business of advising others about trading
`commodities, including retail forex on a margined or leveraged basis. See 7 U.S.C. § 1a(12) (2018). The Act
`defines a CTA as including a person who is registered with the Commission as a CTA. Id.§ 1a(12)(A)(iii).
`
`
`
`6
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`These results are based on simulated or hypothetical performance results that have
`certain inherent limitations. Unlike the results shown in an actual performance
`record, these results do not represent actual trading. Also, because these trades
`have not actually been executed, these results may have under-or over-
`compensated for the impact, if any, of certain market factors, such as lack of
`liquidity. Simulated or hypothetical trading programs in general are also subject
`to the fact that they are designed with the benefit of hindsight. No representation
`is being made that any account will or is likely to achieve profits or losses similar
`to these being shown.
`
`Other Anti-Fraud Statutes and Regulations under the Act
`
`
`
`C.
`
`21.
`
`Section 6(c)(1) of the Act, 7 U.S.C. § 9(1) (2018), provides, in relevant part, that
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`it shall be unlawful for any person, directly or indirectly, to use or employ, or attempt to use or
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`employ, in connection with any swap, or contract of sale of any commodity in interstate
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`commerce, or for future delivery on or subject to the rules of any registered entity, any
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`manipulative or deceptive device or contrivance, in contravention of such rules and regulations
`
`as the Commission shall promulgate.
`
`22.
`
`Regulation 180.1, 17 C.F.R. § 180.1 (2019), provides, in relevant part, that it
`
`shall be unlawful for any person, directly or indirectly, in connection with any swap, or contract
`
`of sale of any commodity in interstate commerce, or contract for future delivery on or subject to
`
`the rules of any registered entity, to intentionally or recklessly: (A) use or employ, or attempt to
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`use or employ, any manipulative device, scheme, or artifice to defraud; (B) make, or attempt to
`
`make, any untrue or misleading statement of a material fact or to omit to state a material fact
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`necessary in order to make the statements made not untrue or misleading; or (C) engage, or
`
`attempt to engage, in any act, practice, or course of business, which operates or would operate
`
`as a fraud or deceit upon any person. This provision was promulgated pursuant to 7 U.S.C.
`
`§ 9(1).
`
`23.
`
`Pursuant to Section 2(c)(2)(C)(ii)(I) of the Act, 7 U.S.C. § 2(c)(2)(C)(ii)(I)
`
`(2018), “agreements, contracts, or transactions described in [Section 2(c)(2)(C)(i) of the Act],”
`
`
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`7
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`including retail forex transactions offered on a margined or leveraged basis to persons who are
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`not eligible contract participants, “shall be subject to” provisions including Section 6(c)(1) of
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`the Act, 7 U.S.C. § 9(1).
`
`D.
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`Aiding and Abetting under the Act
`
`24.
`
`Section 13(a) of the Act, 7 U.S.C. § 13c(a) (2018), provides that “any person
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`who commits, or who willfully aids, abets, counsels, commands, induces, or procures the
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`commission of, a violation of any provisions of this Act . . . may be held responsible for such
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`violation as a principal.”
`
`V.
`
`FACTS
`
`A.
`
`Defendants’ Forex Solicitations and Representations
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`25.
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`Defendants marketed Compcoin as “[a]n incentivized blockchain-based
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`Financial Investment Coin” by which “Compcoin owners will measure its value through the
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`performance (actual and perceived future sustainability) of its automated, algorithmic trading
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`platform,” known as ART.
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`26.
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`In order for Defendants’ customers to gain access to ART, customers were
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`required to first purchase Compcoin. Customers could purchase Compcoin directly from other
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`purchasers of Compcoin through an authorized digital asset exchange, or—as was the case for
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`many Compcoin holders—directly from Compcoin LLC, an affiliate of Fintech which was
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`wholly owned by Friedland. Customers were then supposed to hold Compcoin at an address
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`specified by Fintech on the public Compcoin blockchain. According to Fintech, once it
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`confirmed that the customer posted Compcoin to the designated address on the blockchain,
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`Fintech would then trade the customer’s individual forex account using ART. This never
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`happened.
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`8
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`27.
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`Defendants solicited customers to purchase Compcoin through various means,
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`including a white paper posted to Compcoin LLC’s website, other statements on the website,
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`written solicitation materials, paid press releases, and verbal communications.
`
`28.
`
` Defendants’ white paper was replete with statements such as the following:
`
`(a) Compcoin could be used as “tokens” to gain access to “sophisticated, A.I.-
`
`enhanced trading technologies.”
`
`(b) “[T]he primary function of Compcoin is to grant investors access to ART – a
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`proprietary, automated, algorithmic foreign currency exchange (forex)
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`trading platform developed by Fintech Investment Group” that is “complete
`
`in form and function.”
`
`(c) After more than eight years of testing, ART “is likely to deliver a return on
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`investment (ROI). As such, Compcoin’s founders felt the technology was
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`ready for release on the open market.”
`
`(d) “ART’s high success rate at predicting USD/EUR [i.e., U.S. dollar/euro]
`
`forex trades, coupled with the high rate of return from these trades, will
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`stimulate demand among investors and forex traders to purchase and use
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`Compcoin- specifically to gain access to ART.”
`
`(e) “In eight years of controlled lab testing, Compcoin delivered an average
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`10%* quarterly return on investment (ROI) – much higher than the ROI of
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`most retail and institutional forex traders.” The asterisk referred to a
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`footnote, which in smaller print, read “*NOTE Preliminary performance
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`results were primarily achieved in a controlled environment using historical
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`
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`9
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`trading data measured against actual forex trading results. It is important to
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`note past results are not an indicator of future performance.”
`
`29.
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`Further, in or about June 2017, in a press release paid for by Compcoin LLC,
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`Friedland, as the founder of Fintech and Compcoin LLC, was quoted as representing that
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`“[a]fter eight years of testing, which resulted in highly successful predictions and high returns,
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`we believe Compcoin is ready to generate profits for forex traders on the open market.”
`
`30.
`
`Defendants solicited customers to utilize ART in connection with retail forex
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`trading on a margined or leveraged basis, listing on the Compcoin LLC website various forex
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`trading platforms that were compatible with the ART technology and including the amount of
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`leverage that could be utilized in trading on each platform.
`
`31.
`
`Defendants solicited customers who were not eligible contract participants, as
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`that term is defined in Section 1a(18) of the Act, 7 U.S.C. § 1a(18) (2018).
`
`32.
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`During the Relevant Period, Defendants sold Compcoin to hundreds of
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`customers through Defendant Compcoin LLC raising over $1.6 million.
`
`B.
`
`Defendants’ Fraud
`
`33.
`
`Defendants’ solicitation representations, set forth above, were untrue and
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`materially misleading. Defendants made these false and misleading representations of material
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`fact knowingly or recklessly in that they knew that these statements were false or misleading.
`
`34.
`
`Prior to the purchase of Compcoin by anyone, Defendants knew that Compcoin
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`could not be used by customers to gain access to ART because Fintech had not been approved
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`to advise customers as to trading forex using ART.
`
`35.
`
`Further, Defendants knew that the performance of ART which was included in
`
`Defendants’ solicitations was based largely or entirely on hypothetical performance results, not
`
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`10
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`real trading, and further knew that the solicitations did not contain the language set out in
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`Regulation 4.41(b), 17 C.F.R. § 4.41(b) (2019).
`
`36.
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`Defendants also knew that ART could not lawfully automatically manage any
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`customer accounts because Defendants knew before Fintech could lawfully offer ART to
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`purchasers of Compcoin, Fintech was required to seek and obtain the approval of its risk
`
`disclosure documents from the NFA. This approval never happened. Defendants offered
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`Compcoin prior to Fintech seeking NFA approval of its disclosure documents, and Fintech
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`never obtained NFA approval of the disclosure documents.
`
`37.
`
`Compcoin LLC’s website did not contain an NFA approved risk disclosure
`
`statement for ART because the NFA never approved Fintech’s risk disclosure documents for
`
`ART.
`
`38.
`
`Regulation 4.36, 17 C.F.R. § 4.36 (2019), requires that a CTA “must
`
`electronically file with the National Futures Association, pursuant to the electronic filing
`
`procedures of the National Futures Association, the Disclosure Document for each trading
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`program that it offers or intends to offer not less than 21 calendar days prior to the date the
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`trading advisor intends to deliver the Document to a prospective client in the trading program.”
`
`In practice, this Regulation allows the NFA to review the solicitation and require the CTA to
`
`make any necessary changes prior to solicitation. It also affords the NFA with the opportunity
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`to reject inadequate disclosures in advance of any solicitation and withhold approval of a
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`Disclosure Document that does not conform with the NFA Rules or CFTC Regulations. The
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`NFA’s website makes clear to all CTAs and prospective CTAs that a Disclosure Document may
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`not be used unless and until the CTA receives an acceptance letter.
`
`
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`11
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`39.
`
`Defendants knew that Compcoin could not lawfully be used by customers to
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`trade forex with ART unless and until the NFA approved the disclosure statement by issuing an
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`acceptance letter.
`
`40.
`
` From approximately September 2017 to May 2018, the NFA advised Defendant
`
`Fintech in writing that the forex trading disclosure documents, which Fintech had submitted to
`
`the NFA for approval, were deficient and could not be used to solicit customers for forex
`
`trading using ART until acceptable disclosures were filed with, approved and accepted by the
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`NFA. Defendant Fintech was advised in writing that soliciting customers with disclosures that
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`were not accepted by the NFA “will result in violations of NFA Rules and CFTC Regulations
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`and could subject the firm to possible disciplinary action.”
`
`41.
`
`The NFA never issued an acceptance letter.
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`42. Moreover, although Defendants touted the successful performance of ART
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`through the Compcoin LLC website and in advertising materials, Defendants knew that
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`Compcoin LLC’s website, which was used to solicit customers, did not contain the required
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`disclosure statement set forth in 17 C.F.R § 4.41(b) for simulated or hypothetical performance.
`
`
`
`VI.
`
`VIOLATIONS OF THE COMMODITY EXCHANGE ACT
`AND COMMISSION REGULATIONS
`
`Count I
`
`Violations of Section 4b(a)(2)(A)-(C) of the Act,
`7 U.S.C. § 6b(a)(2)(A)-(C) (2018),
`and Regulation 5.2(b)(1)-(3),
`17 C.F.R. § 5.2(b)(1)-(3) (2019)
`(Forex Fraud)
`(Fintech, Friedland and Compcoin LLC)
`
`The allegations set forth in paragraphs 1 through 42 are re-alleged and
`
`43.
`
`incorporated herein by reference.
`
`
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`12
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`44.
`
`7 U.S.C. § 6b(a)(2)(A)-(C) makes it unlawful:
`
`for any person, in or in connection with any order to make, or the
`making of, any contract of sale of any commodity for future
`delivery, or swap, that is made, or to be made, for or on behalf of,
`or with, any other person, other than on or subject to the rules of a
`designated contract market--
`
`
`
`(A) to cheat or defraud or attempt to cheat or defraud the
`other person;
`
`
`
`
`
`
`
`(B) willfully to make or cause to be made to the other
`person any false report or statement or willfully to enter or
`cause to be entered for the other person any false record;
`
`(C) willfully to deceive or attempt to deceive the other person
`by any means whatsoever in regard to any order or contract or
`the disposition or execution of any order or contract, or in
`regard to any act of agency performed, with respect to any
`order or contract for or, in the case of paragraph (2), with the
`other person[.]
`
`
`17 C.F.R. § 5.2(b) provides, in relevant part, that:
`
`45.
`
`[i]t shall be unlawful for any person, by use of the mails or by any
`means or instrumentality of interstate commerce, directly or
`indirectly, in or in connection with any retail forex transaction:
`
`
`(1) To cheat or defraud or attempt to cheat or defraud any
`person;
`
`
`(2) Willfully to make or cause to be made to any person
`any false report or statement or cause to be entered for
`any person any false record; or
`
`
`(3) Willfully to deceive or attempt to deceive any person
`by any means whatsoever.
`
`46.
`
`Defendants, in connection with retail forex transactions, knowingly or
`
`recklessly: cheated or defrauded or attempted to cheat or defraud customers and prospective
`
`
`
`13
`
`
`
`Case 6:20-cv-00652-WWB-EJK Document 1 Filed 04/16/20 Page 14 of 24 PageID 14
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`customers and deceived or attempted to deceive customers and prospective customers by,
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`among other things, fraudulently soliciting customers and prospective customers to purchase
`
`Compcoin, falsely promising that Compcoin would allow customers to gain access to ART,
`
`falsely advertising that ART would deliver high rates of return and failing to include the
`
`required disclosure that Fintech and ART’s forex trading performance results were largely or
`
`entirely based on simulated or hypothetical performance and not actual trading results as
`
`required by the relevant Regulation.
`
`47.
`
`By reason of the foregoing, Defendants violated 7 U.S.C. § 6b(a)(2)(A)-(C) and
`
`17 C.F.R. § 5.2(b)(1)-(3).
`
`48.
`
`Each misrepresentation, omission of material fact, and false statement, including
`
`but not limited to those specifically alleged herein, is alleged as a separate and distinct violation
`
`of 7 U.S.C. § 6b(a)(2)(A)-(C) and 17 C.F.R. § 5.2(b)(1)-(3).
`
`
`Count II
`
`Violations of Section 4o(1)(A) and (B) of the Act,
`7 U.S.C. § 6o(1)(A)–(B) (2018)
`(Fraud by a Commodity Trading Advisor)
`(Fintech and Friedland)
`
`Paragraphs 1 through 48 are re-alleged and incorporated herein by reference.
`
`7 U.S.C. § 6o(1)(A) and (B) make it unlawful for a CTA or associated person of
`
`49.
`
`50.
`
`a CTA “by use of the mails or any means or instrumentality of interstate commerce, directly or
`
`indirectly- (A) to employ any device, scheme or artifice to defraud any client or . . . prospective
`
`client . . . ; or (B) to engage in any transaction, practice, or course of business which operates as
`
`a fraud or deceit upon any client…or prospective client.”
`
`
`
`14
`
`
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`51.
`
`During the Relevant Period, Fintech was a registered CTA and Friedland acted
`
`as an associated person of Fintech because he was associated with Fintech as “a partner, officer,
`
`employee, consultant, or agent (or any natural person occupying a similar status or performing
`
`similar functions), in any capacity which involves . . . [t]he solicitation of a client’s or
`
`prospective client’s discretionary account,” as set out in Regulation 1.3, 17 C.F.R. § 1.3 (2019).
`
`52.
`
`During the Relevant Period, Defendants Friedland and Fintech, through use of
`
`the mails or other means or instrumentalities of interstate commerce, including the Compcoin
`
`LLC website, employed a device, scheme or artifice to defraud their customers and prospective
`
`customers and engaged in a transaction, practice or course of business which operated as a fraud
`
`upon their customers and prospective customers by, among other things, fraudulently soliciting
`
`customers and prospective customers to purchase Compcoin, falsely promising that Compcoin
`
`would allow customers to gain access to ART, falsely advertising that ART would deliver high
`
`rates of return and failing to include the required disclosure that Fintech and ART’s forex
`
`trading performance results were largely or entirely based on simulated or hypothetical
`
`performance and not actual trading results as required by the relevant Regulation.
`
`53.
`
`Each fraudulent or deceptive act and each misrepresentation or omission of a
`
`material fact, during the Relevant Period, including without limitation those specifically alleged
`
`herein, is alleged as a separate and distinct violation of 7 U.S.C. § 6o(1)(A) and (B).
`
`Count III
`
`Aiding and Abetting Violations of Section 4o(1)(A) and (B) of the Act,
`7 U.S.C. § 6o(1)(A)-(B) (2018)
`(Fraud by a Commodity Trading Advisor)
`(Compcoin LLC)
`
`Paragraphs 1 through 53 are re-alleged and incorporated herein by reference.
`
`54.
`
`
`
`15
`
`
`
`Case 6:20-cv-00652-WWB-EJK Document 1 Filed 04/16/20 Page 16 of 24 PageID 16
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`55.
`
`7 U.S.C. § 6o(1)(A) and (B) makes it unlawful for a CTA or associated person of
`
`a CTA “by use of the mails or any means or instrumentality of interstate commerce, directly or
`
`indirectly- (A) to employ any device, scheme or artifice to defraud any client or . . . prospective
`
`client . . . ; or (B) to engage in any transaction, practice, or course of business which operates as
`
`a fraud or deceit upon any client . . . or prospective client.”
`
`56.
`
`By reason of the conduct described above, Compcoin LLC willfully aided,
`
`abetted, counseled, commanded, induced, or procured the commission of the acts constituting
`
`violations of 7 U.S.C. § 6o(1)(A) and (B) of the Act committed by Fintech and Friedland or
`
`acted in combination or concert with Fintech and Friedland in such violations, and Compcoin
`
`LLC sought by its actions to make Fintech’s and Freedland’s violations succeed. Pursuant to
`
`Section 13(a) of the Act, 7 U.S.C. § 13c(a) (2018), Compcoin LLC is therefore responsible as if
`
`it was a principal for Fintech’s and Friedland’s violations of 7 U.S.C. § 6o(1)(A) and (B) during
`
`the Relevant Period.
`
`57.
`
`Each and every instance during the Relevant Period that Fintech and Friedland
`
`violated 7 U.S.C. § 6o(1)(A) and (B) constitutes a separate and distinct violation of 7 U.S.C. §
`
`6o(1)(A) and (B) for which Compcoin LLC is responsible as if it was a principal under 7 U.S.C.
`
`§ 13c(a).
`
`Count IV
`
`Violations of Section 6(c)(1) of the Act, 7 U.S.C. § 9(1) (2018),
`and Regulation 180.1, 17 C.F.R. § 180.1 (2019)
`(Fraud)
`(Fintech, Friedland and Compcoin LLC)
`
`
`Paragraphs 1 through 57 are re-alleged and incorporated herein by reference.
`
`58.
`
`
`
`16
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`59.
`
`7 U.S.C. § 9(1) makes it unlawful for any person, directly or indirectly, in
`
`connection with any swap, or a contract of sale of any commodity in interstate commerce, or for
`
`future delivery on or subject to the rules of any registered entity, to use or employ, or attempt to
`
`use or employ, any manipulative or deceptive device or contrivance.
`
`60.
`
`17 C.F.R. § 180.1 provides, in relevant part, that it shall be unlawful for any
`
`person, directly or indirectly, in connection with any swap, or contract of sale of
`
`any commodity in interstate commerce, or contract for future delivery on or subject to the rules
`
`of any registered entity, to intentionally or recklessly: (A) use or employ, or attempt to use or
`
`employ, any manipulative device, scheme, or artifice to defraud; (B) make, or attempt to make,
`
`any untrue or misleading statement of a material fact or to omit to state a material fact necessary
`
`in order to make the statements made not untrue or misleading; or (C) engage, or attempt to
`
`engage, in any act, practice, or course of business, which operates or would operate as a fraud
`
`or deceit upon any person.
`
`61.
`
`Section 2(c)(2)(C)(ii)(I) of the Act, 7 U.S.C. § 2(c)(2)(C)(ii)(I) (2018), provides
`
`that “agreements, contracts, or transactions described in [7 U.S.C. § 2(c)(2)(C)(i)],” including
`
`retail forex on a margined or leveraged basis offered to persons who are not eligible contract
`
`participants, “shall be subject to” provisions including 7 U.S.C. § 9(1).
`
`62.
`
`Defendants, directly or indirectly, in connection with retail forex offered on a
`
`margined or leveraged basis to people who are not eligible contract participants, intentionally or
`
`recklessly: (1) used or employed, or attempted to use or employ, manipulative devices,
`
`schemes, or artifices to defraud; (2) made, or attempted to make, untrue or misleading
`
`statements of a material fact or omitted to state material facts necessary in order to make the
`
`statements made not untrue or misleading