Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 1 of 35
`
`Steven Wieland, ISB No. 8282
`steven.wieland.service@mooneywieland.com
`MOONEY WIELAND PLLC
`802 W. Bannock St., Ste 500
`Boise, ID 83702
`t: 208.401.9219
`f: 208.401.9218
`
`Counsel for Plaintiffs
`
`
`UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO
`
`David Powell, an individual; and Merav
`Knafo, an individual,
`
`Case No. ____________________
`
`
`
`vs.
`
`Plaintiffs,
`
`Crypto Traders Management, LLC, a
`dissolved Idaho limited liability company;
`Shawn Cutting, an individual; and Courtney
`Lata, an individual,
`Defendants.
`
`
`
`Verified Complaint
`
`Jury Trial Demanded
`
`
`
`
`
`Plaintiffs, by and through their attorneys, MOONEY WIELAND PLLC, for their
`
`Verified Complaint against Defendants, allege, on knowledge as to their own actions, and
`
`otherwise upon information and belief, as follows:
`
`PRELIMINARY STATEMENT
`
`1.
`
`This is a suit by investors in a cryptocurrency investment fund against the fund
`
`and its managers for defrauding investors. Defendants conned Plaintiffs into depositing money
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`Verified Complaint
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`Page 1 of 35
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 2 of 35
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`by assuring them their investments were growing in value and could be withdrawn at any time
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`when in fact investments were simply being stolen or lost.
`
`2.
`
`Plaintiff David Powell seeks $609,724.27 in damages, plus pre-judgment
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`interest accruing at $87.59 per diem as of 7/10/20, and post-judgment interest accruing at the
`
`statutory rate.
`
`3.
`
`Plaintiff Merav Knafo seeks $122,797.10 in damages, plus pre-judgment
`
`interest accruing at $17.64 per diem as of 7/10/20, and post-judgment interest accruing at the
`
`statutory rate.
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`JURISDICTION
`
`4.
`
`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, in
`
`that this is an action arising under the Securities Act of 1933, 15 U.S.C. § 77a, et seq. (the
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`“Securities Act”). Subject-matter jurisdiction under the Securities Act is further founded
`
`under 15 U.S.C. § 77v(a).
`
`5.
`
`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, in
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`that this is also an action rising under the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et
`
`seq. (the “Exchange Act”). Subject-matter jurisdiction under the Exchange Act is further
`
`founded under 15 U.S.C. § 78aa(a).
`
`6.
`
`This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)
`
`because the amount in controversy exceeds $75,000 and the suit is between Plaintiffs, who are
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`citizens of Utah and Hawaii, and Defendants, who are all citizens of Idaho.
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`Verified Complaint
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 3 of 35
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`VENUE
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`7.
`
`Venue is proper in this district under 28 U.S.C. § 1391(b)(1) because all
`
`Defendants reside in, or are principally located in, the state of Idaho and because a substantial
`
`part of the events or omissions giving rise to the claim occurred in this state.
`
`8.
`
`Venue is also proper pursuant to the Securities Act, 15 U.S.C. § 77v(a), and
`
`the Exchange Act, 15 U.S.C. § 78aa(a), because all Defendants reside in and transact or
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`transacted business in this district.
`
`PARTIES
`
`9.
`
`10.
`
`11.
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`Plaintiff David Powell is an individual who resides in West Jordan, Utah.
`
`Plaintiff Merav Knafo is an individual who resides in Pahoa, Hawaii.
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`Defendant Crypto Traders Management, LLC, is a limited liability company
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`formed under the laws of Idaho, formerly with a principal place of business located in Bonner
`
`County, Idaho (“CTM”). CTM was administratively dissolved effective May 15, 2019, and
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`has not been reinstated. On information and belief, it is believed that Defendant Shawn
`
`Cutting was the sole member/manager of CTM. CTM is not, and never has been, a registered
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`broker-dealer under state or federal law.
`
`12.
`
`Defendant Shawn Cutting is an individual who resides in Blanchard, Bonner
`
`County, Idaho. Cutting is not, and never has been, a registered broker-dealer under state or
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`federal law. Cutting is a career conman with multiple convictions for theft, bank fraud, and
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`forgery going back at least to the 1990s.
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`Verified Complaint
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`Page 3 of 35
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 4 of 35
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`13.
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`Defendant Courtney Lata is an individual who resides in Coeur d’Alene,
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`Kootenai County, Idaho. Lata is Cutting’s daughter and is formerly known as Courtney
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`Cutting. Lata is not, and never has been, a registered broker-dealer under state or federal law.
`
`14.
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`Defendants Cutting and Lata, in conducting the investment enterprise
`
`described herein, have referred to themselves as “CTM” or “CTC.”
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`FACTS
`
`15.
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`In recent years, popular interest in digital assets has skyrocketed worldwide.
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`Often called “cryptocurrencies,” there are now numerous digital assets based on blockchain
`
`technology, which allows asset owners to hold and transfer assets without the need for a
`
`centralized processing authority.
`
`16.
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`Perhaps the best-known digital asset is Bitcoin. However, there are now more
`
`than 5,000 alternative blockchain-based assets generally known as “altcoins.” It is common for
`
`altcoin issuers to begin sales of altcoins in “initial coin offerings” or “ICOs” in a process that
`
`resembles an informal initial public offering of unregistered securities. More recently, altcoin
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`offerings called “initial exchange offerings” or “IEOs” have moved to online trading platforms
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`purporting to be legitimate securities exchanges engaging in offerings for companies raising
`
`capital. Collectively, ICOs and IEOs are referred to as “altcoin offerings.”
`
`17.
`
`The U.S. Securities and Exchange Commission has noted that altcoin offerings
`
`are frequently conducted in violation of applicable securities regulations and on exchanges not
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`Verified Complaint
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 5 of 35
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`properly registered with (or exempt from registration with) the SEC.1 In the past several
`
`years, the SEC has aggressively ramped up enforcement activity against illegal altcoin
`
`offerings.
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`18.
`
`In addition to being conducted outside any legitimate legal framework, altcoin
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`offerings have frequently proven merely to be a new take on old “pump-and-dump” investment
`
`scams or simply offerings of valueless and fraudulent securities. In addition, a cottage industry
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`has grown up around altcoin offerings to pursue other kinds of fraud, such as soliciting bogus
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`investment fees from investors or conducting old-fashioned ponzi schemes dressed up as novel,
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`“cutting-edge” investment opportunities.2
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`19.
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`Sometime in 2018, Cutting began running a scheme under which he took
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`“deposits” from the public for a fund that supposedly invested in altcoin offerings (the “Crypto
`
`Fund”).
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`20.
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`The Crypto Fund was simply a scam to induce investors to hand over ever
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`increasing amounts of money by fraudulently stating that investments were growing rapidly
`
`
`
`1 See, e.g, Statement on Potentially Unlawful Online Platforms for Trading Digital Assets, SECURITIES AND EXCHANGE
`COMMISSION
`(Mar.
`7,
`2018) https://www.sec.gov/news/public-statement/enforcement-tm-statement-
`potentially-unlawful-online-platforms-trading; Statement on Cryptocurrencies and Initial Coin Offerings,
`SECURITIES AND EXCHANGE COMMISSION
`(Dec.
`11,
`2017), https://www.sec.gov/news/public-
`statement/statement-clayton-2017-12-11; Investor Bulletin: Initial Coin Offerings, SECURITIES AND EXCHANGE
`COMMISSION (Dec. 11, 2017) https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings; Investor
`Alert: Bitcoin and Other Virtual Currency-Related Investments, SECURITIES AND EXCHANGE COMMISSION (May 7,
`2014), https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-
`alerts/investor-39
`
`2 See Investor Alert: Ponzi Schemes Using Virtual Currencies, S.E.C. OFFICE OF INVESTOR EDUCATION AND POLICY
`available at https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf.
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`Verified Complaint
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`and could be withdrawn on request when in fact the money was either being squandered or
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`stolen and could not be withdrawn.
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`21.
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`Acting on a suggestion from a friend, on November 4, 2018, Powell invested
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`Bitcoin worth $13,766.00 in the Crypto Fund using a CTM online portal.
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`22.
`
`Before Powell made his initial investment, CTM made no meaningful
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`cautionary disclosures to Powell or provided him with a prospectus, a subscription agreement,
`
`or the like. Powell never executed any written agreement with Defendants.
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`23.
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`At no point did Defendants take any steps to confirm Powell’s identity or his
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`status as an accredited or sophisticated investor.
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`24.
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`That same day, Powell received an automated email receipt from CTM
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`acknowledging the investment and stating, “I understand that my deposit will be converted to
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`US Dollars and stored in my account balance in US Dollars.”
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`25.
`
`The above deposit receipt language appeared in every CTM deposit receipt
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`received from Defendants by Powell or Knafo.
`
`26.
`
`After making his initial investment, Powell began receiving monthly email
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`“newsletters” as well as separate “earnings updates” emails from Cutting. After Knafo made
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`her initial investment later on, she received similar or identical monthly newsletters and
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`earnings updates as well.
`
`27.
`
`The monthly earnings updates always showed Plaintiffs’ account values with
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`fields for “earnings,” “deposits,” “withdrawals,” and “active investment” expressed as U.S.
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`Verified Complaint
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`Dollars. These emails also had a specific field indicating what withdrawals had occurred during
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`that period.
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`28.
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`Although Cutting signed the newsletter and earnings update emails as the
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`“CTC Team” or “CTM Team” the CTC or CTM team consisted solely of Cutting and Lata.
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`Each newsletter and earnings update ended with a hyperlink to an online form through which
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`recipients could invest additional funds.
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`29. On December 1, 2018, Cutting sent a newsletter stating that despite a 40%
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`drop in the altcoin market, the Crypto Fund made “a positive 9% gain for the month of
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`November [2018].” This email caused Powell to believe that his investment gains would be
`
`expressed in U.S. Dollars. On the same day, Cutting sent Powell an earnings update showing
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`that Powell’s investment had grown by 9% during November 2018 to a total “active
`
`investment” amount of $15,004.94.
`
`30. On January 2, 2019, Cutting sent Powell a newsletter stating that the Crypto
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`Fund “managed to end in the green 11 of the 12 months for 2018” and was “able to get up to a
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`7% gain” for the month of December 2018. The same email suggested that the Crypto Fund
`
`would soon see “gains of up to 6000 – 15000%.” On the same day, Cutting sent Powell an
`
`earnings update showing that Powell’s investment had grown by 7% during December 2018 to
`
`a total “active investment” amount of $16,055.28.
`
`31.
`
`On February 2, 2019, Cutting sent Powell a newsletter stating that although
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`the altcoin market had dropped by 21%, the Crypto Fund “ended up in the green for a 4.5%
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`gain that has been added to your portfolio.” On the same day, Cutting sent Powell an earnings
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`Verified Complaint
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 8 of 35
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`update showing that Powell’s investment had grown by 4.5% during January 2019 to a total
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`“active investment” amount of $16,777.76.
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`32. On March 4, 2019, Cutting sent Powell an earnings update showing that
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`Powell’s investment had grown by 7.1% during February 2019 to a total “active investment”
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`amount of $17,968.98.
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`33. On April 2, 2019, Cutting sent Powell an earnings update showing that
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`Powell’s investment had grown by 8.5% during March 2019 to a total “active investment”
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`amount of $19,496.34.
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`34. On April 3, 2019, Cutting sent Powell a newsletter stating that the Crypto
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`Fund had experienced “a slight upward trend again for March for a gain of 8.5%.” The
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`newsletter encouraged investors to deposit more funds, stating, “If you are planning to jump
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`into the Crypto World with both feet, I wouldn’t wait much longer, because gains tend to
`
`happen fast.”
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`35.
`
`Relying on regular emails indicating that his investment was undergoing
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`explosive growth and could be readily withdrawn, Powell decided to invest more funds. On
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`April 22, 2019, Powell clicked on the “Deposits” hyperlink in the most recent newsletter and
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`was directed to Lata’s personal PayPal account where he deposited $17,092.00. Powell received
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`a deposit receipt for the investment from Lata’s personal PayPal account as well as CTM.
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`36. On May 4, 2019, Cutting sent Powell an earnings update showing that Powell’s
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`investment had grown by 6% during April 2019 to a total “active investment” amount of
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`$38,257.91.
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`Verified Complaint
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 9 of 35
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`37.
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`On May 6, 2019, Cutting sent Powell a newsletter stating that the Crypto
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`Fund “had another positive gain for April [2019].” The newsletter went on to make the
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`following false statements:
`
`Crypto Traders Management operates a Hedge Fund that was formed
`for the purpose of investing in a portfolio of cryptocurrencies and other
`blockchain technology assets. We determine whether a Crypto-Asset
`qualifies for inclusion in the portfolio according to market opportunity,
`technical specifications, and investment timing.
`
`. . . .
`
`CTM implements advanced security measures of operations and will
`utilize an in-house proprietary secure platform that mitigates counter-
`party risk and uses multi-signature authorization for transfers, trades,
`purchases, or sales of funds.
`
`38.
`
`Relying on regular emails indicating that his investment was undergoing
`
`explosive growth and could be readily withdrawn, Powell invested $1,075.00 on May 9, 2019.
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`To make the investment, Powell clicked on the “Deposits” hyperlink in the most recent
`
`newsletter and was directed to Lata’s personal PayPal account. That same day, he received
`
`deposit receipts from Lata’s personal PayPal account as well as CTM. On May 10, 2019, Lata
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`emailed the CTM receipt to Powell again, purporting to write on behalf of the “CTM Team.”
`
`39. On May 15, 2019, CTM administratively dissolved.
`
`40. Having been told for over 6 months that his investment was safe, accessible,
`
`and steadily increasing in value, Powell began considering whether to make a much larger
`
`investment but wanted to be sure that he could withdraw the money if needed. On May 20,
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`2019, he emailed Lata several questions, including: “How would I make a large withdrawal?”
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`Lata responded the next day stating that Powell could invest up to $5 million. She wrote, “We
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`Verified Complaint
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`would do a large withdrawal by selling out on the exchange, transfer to the bank and wire back
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`to you. We could do it in [Bitcoin] if you prefer.” Lata added that Powell’s “timing in this
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`market couldn’t be better!”
`
`41.
`
`On June 5, 2019, Cutting sent Powell a newsletter stating that the Crypto Fund
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`“made SAFE gains with a small percentage that we are day and swing trading with.” That
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`same day, Cutting sent Powell an earnings update showing that Powell’s investment had grown
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`by 6% during May 2019 to a total “active investment” amount of $41,659.51.
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`42. On July 2, 2019, Cutting sent Powell a newsletter noting that although the
`
`altcoin markets were in “a panic,” the Crypto Fund “played it safe and had an okay month of
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`trading.” That same day, Cutting sent Powell an earnings update showing that Powell’s
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`investment had grown by 6.67% during June 2019 to a total “active investment” amount of
`
`$44,438.19.
`
`43. On July 9, 2019, Lata coordinated with Powell to wire $500,000.00 into a bank
`
`account under the name “Crypto Traders Management, LLC Shawn Cutting.”
`
`44. Having been led to believe the Crypto Fund was a legitimate and successful
`
`investment vehicle, Powell suggested to Knafo that she also invest.
`
`45.
`
`Relying on representations that Cutting and Lata made to Powell, on July 28,
`
`2019, Knafo invested $4,745.94 of Bitcoin in the Crypto Fund. Later that day, Knafo received
`
`a CTM deposit receipt.
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`46. On July 30, 2019, Lata emailed Knafo stating that CTM “will send you reports
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`periodically and monthly spreadsheets with information regarding your account and any new
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`Verified Complaint
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`changes.” The email contained both a “withdrawals” hyperlink and an email address to which
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`Knafo could submit withdrawal requests.
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`47.
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`The July 30, 2019, message also stated that CTM “had [its] attorneys, that are
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`the best of the best, create a mutual trading agreement between ourselves and our clients,”
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`followed by a hyperlink to a “Crypto Traders Management Service Agreement” (the “Service
`
`Agreement”). The Service Agreement is apparently not drafted by someone with legal
`
`training. The Service Agreement refers to the investor as the “Client” and provides that:
`
`a.
`The trade name Crypto Traders Management is “synonymous with”
`all CTM employees and to Shawn Cutting in their individual capacities, and does not
`merely refer to the CTM entity;
`
`b.
`The minimum investment period is 90 days, during which a
`withdrawal penalty will apply, but only to withdrawals of the original investment
`principal, not to earnings;
`
`c.
`After the initial 90 days, “Client may request a withdrawal from any
`deposited amounts and earnings,” subject only to a processing fee of 5%;
`
`d.
`“The Client reserves the right to terminate this agreement and close
`their account with Crypto Traders Management at any time,” subject to an early
`termination fee; and
`
`e.
`Defendants will charge a management fee of 30% of “earnings
`generated each reporting period (typically every month).”
`
`48.
`
`49.
`
`Knafo accepted the terms of the Service Agreement using an online form.
`
`In reliance on the above communications and the Service Agreement terms,
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`and believing that she could withdraw her funds in accordance therewith, Knafo made an
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`additional investment of Bitcoin worth $10,470.00 on August 2, 2019. She received a CTM
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`deposit receipt shortly thereafter.
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`Verified Complaint
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`50.
`
`Between August 5, 2019, and August 7, 2019, Cutting sent similar newsletters
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`to Powell and Knafo stating that the Crypto Fund ended July 2019 “in the green.”
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`51.
`
`On August 5, 2019, Cutting sent Powell an earnings update stating that his
`
`investment grew by 3.65% in July 2019, for a total “active investment” of $564,310.18.
`
`52.
`
`On August 7, 2019, Cutting sent Knafo an earnings update stating that her
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`investment grew by 3.3% in July 2019, for a total “active investment” of $4,902.61 as of
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`month’s end.
`
`53.
`
`On August 17, 2019, in reliance on previous communications from Cutting and
`
`Lata, Knafo wired $1,030.25 to a bank account under the name Crypto Traders Management,
`
`LLC for a net investment of $1,000.00.
`
`54.
`
`On August 20, 2019, in reliance on previous communications from Cutting
`
`and Lata, Knafo wired $19,027.75 to a bank account under the name Crypto Traders
`
`Management, LLC for a net investment of $18,980.00.
`
`55.
`
`On September 5, 2019, in reliance on previous communications from Cutting
`
`and Lata, Knafo wired $20,029.00 to a bank account under the name Crypto Traders
`
`Management, LLC, for a net investment of $20,000.00.
`
`56.
`
`Between September 6, 2019, and September 9, 2019, Cutting sent Powell and
`
`Knafo newsletters stating that although the altcoin markets lost 10% of their value in August
`
`2019, the Crypto Fund “ended the month with some positive gains.”
`
`57.
`
`On October 7, 2019, Cutting sent Knafo an earnings update stating that her
`
`investment grew by 0% in September 2019, for a total “active investment” of $56,589.95.
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`Verified Complaint
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`58.
`
`Between October 7, 2019, and October 8, 2019, Cutting sent Powell and Knafo
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`similar newsletters stating that even though there were “massive downswings” in the altcoin
`
`markets in September 2019, the Crypto Fund “ended with a zero percent gain.” The newsletter
`
`sent to Powell went on to state, “We always say that you can’t win them all, but……we have
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`keep [sic] everyone out of the negative months since early 2018.”
`
`59.
`
`On October 18, 2019, in reliance on previous communications from Cutting
`
`and Lata, Knafo wired $20,029.00 to a bank account under the name Crypto Traders
`
`Management, LLC, for a net investment of $20,000.00 after fees.
`
`60. On November 2, 2019, in reliance on previous communications from Cutting
`
`and Lata, Knafo made an additional investment of Bitcoin worth $18,660.00. She received a
`
`deposit receipt shortly thereafter.
`
`61.
`
`On November 4, 2019, in reliance on previous communications from Cutting
`
`and Lata, Knafo made an additional investment of Bitcoin worth $15,725.00. She received a
`
`deposit receipt shortly thereafter.
`
`62.
`
`Earnings updates and newsletters received by both Powell and Knafo after
`
`making all their investments represented that the value of their accounts was either static or
`
`growing every month.
`
`63.
`
`In a newsletter sent to Powell and Knafo between March 15, 2020, and March
`
`18, 2020, Cutting admitted that he was falsely reporting account values to investors. He wrote
`
`that altcoins held in the Crypto Fund could not be sold at market value without “causing a
`
`severe loss.” He wrote, “With the current market conditions, it makes it very difficult to get
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`Verified Complaint
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`sell orders to fill without taking a big loss on your end and we have no time frame to give you
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`as to when you can expect the withdrawal.” Instead, he urged investors to wait until the
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`portfolio prices rebounded and altcoin holdings could be sold without a loss but provided no
`
`information as to how long that would take.
`
`64.
`
`Starting as early as August 2019, Powell began requesting regular monthly
`
`withdrawals to cover expenses and taxes. Cutting agreed to the requests verbally and in writing
`
`but did not provide monthly withdrawals as agreed. Since September 2019, Cutting has
`
`ignored literally dozens of phone calls, voicemails, text messages, emails, and form submissions
`
`from Powell seeking to withdraw funds. Cutting claims to be unreachable, out of cell service,
`
`unable to process requests, and the like. Most communications simply go unanswered.
`
`65.
`
`Even after dodging Powell’s withdrawal requests for months, and even after
`
`admitting that the market value of Crypto Fund assets did not support account valuations
`
`being sent to investors, Cutting sent an earnings update to Powell on May 9, 2020, stating
`
`that Powell’s “active investment” had grown to $603,750.35.
`
`66. On May 16, 2020, Powell demanded that Cutting close his account and remit
`
`the entire $603,750.35 balance. Powell has since repeated this demand through previous
`
`counsel.
`
`67.
`
`On May 18, 2020, Cutting told Powell’s previous counsel that sale of altcoins
`
`attributed to Powell’s account would cause an 80% loss of Powell’s investment funds.
`
`68. Of Powell’s $531,933.00 total net investment, he has only recovered a total of
`
`$50,000.00 by receiving only the following payments:
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`Verified Complaint
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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 15 of 35
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`a.
`
`b.
`
`c.
`
`8/14/2019 - $10,000.00
`
`11/7/2019 - $20,000.00
`
`1/10/2020 - $20,000.00
`
`69.
`
`All interest calculations in this Verified Complaint take into account the
`
`payments above when made.
`
`70.
`
`On February 11, 2020, Knafo sent a request to Cutting to close her account
`
`and withdraw all her funds, followed by at least 3 more similar requests. Since her initial
`
`request to close her account, she has also repeatedly emailed Cutting and asked for her money
`
`back, but these emails have largely been ignored.
`
`71.
`
`Despite repeated unfulfilled requests to obtain her money, Knafo received
`
`earnings statement from Cutting on February 11, 2020, March 13, 2020, April 11, 2020, and
`
`May 13, 2020, all indicating her “active investment” amount was $119,375.94.
`
`72.
`
`73.
`
`Of Knafo’s $109,581.00 net investment, she has recovered nothing.
`
`Investments in the Crypto Fund are “securities” as defined in the Exchange
`
`Act, 15 U.S.C. § 78c(a)(10), and the Securities Act, 15 U.S.C. § 77b(a)(1), as investment
`
`contracts because:
`
`a.
`money;
`
`Plaintiffs invested money and other assets readily convertible into
`
`b.
`Defendants’ operation of the Crypto Fund incorporated money
`contributed by other investors and managed by Defendants in a common enterprise to
`generate returns;
`
`c.
`
`Plaintiffs expected to earn a profit on their investment; and
`
`d.
`The profit to be generated by the Crypto Fund was to be generated
`solely by the efforts of others, namely, Defendants.
`
`Verified Complaint
`
`
`Page 15 of 35
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`

`

`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 16 of 35
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`74.
`
`75.
`
`All sales of securities at issue in this case took place within the state of Idaho
`
`All sales of securities occurred online or through bank wire transfers and
`
`implicated internet and telephonic communications between parties of different states. Thus,
`
`all conduct alleged in this Complaint involves interstate commerce.
`
`76.
`
`77.
`
`No registration statement has ever been in effect for the securities.
`
`Plaintiffs are entitled to prejudgment interest reflecting interest on comparable
`
`investments. The bare minimum interest rate applicable here is the Idaho statutory interest
`
`rate, I.C. § 28-22-104, but evidence at trial will establish that an appropriate interest rate is
`
`much higher given the possibility of aggressive returns on properly managed altcoin
`
`investments and growth in other kinds of investments available to Plaintiffs.
`
`COUNT I
`SECURITIES FRAUD UNDER THE EXCHANGE ACT
`(All Defendants)
`
`Plaintiffs repeat and reallege all the preceding paragraphs as if fully set forth
`
`Cutting for himself and for CTM made numerous assertions as to the value
`
`herein.
`
`78.
`
`79.
`
`of, and changes in value of, investment accounts as described in the paragraphs above.
`
`80.
`
`Such assertions were false either because the value of underlying altcoin assets
`
`in the Crypto Fund were far too low to support Cutting’s account valuations or because
`
`Cutting was simply stealing funds from investors.
`
`Verified Complaint
`
`
`Page 16 of 35
`
`

`

`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 17 of 35
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`81.
`
`Assertions of value and gain were material to all of Plaintiffs’ decisions to
`
`invest. Had they known that investments were declining in value or that account values were
`
`untrue, they would not have invested.
`
`82.
`
`The materially false statements directly caused Plaintiffs to make their
`
`investments, who acted in reliance thereon.
`
`83.
`
`As the fund manager, Cutting was aware that the statements on value and gain
`
`were false when he made them.
`
`84.
`
`Cutting intended for the representations on value and gain to overstate the
`
`Crypto Fund performance to generate additional interest and investment in the Crypto Fund.
`
`85.
`
`Lata and Cutting, acting for themselves and for CTM, both made statements
`
`identified in the paragraphs above indicating that investments could be withdrawn and
`
`accounts could be closed promptly upon notice to Defendants.
`
`86.
`
`Lata and Cutting knew these representations were false because they did not
`
`ever intend to promptly comply with withdrawal notices and/or they knew that the Crypto
`
`Fund portfolio could not support withdrawals up to the full stated investor account values.
`
`87.
`
`Lata and Cutting made the representations intending to induce prospective
`
`investors to contribute more money.
`
`88.
`
`Plaintiffs would not have made any investments if they knew they would be
`
`unable to withdraw their money on request.
`
`89.
`
`Plaintiffs were unaware that Defendants’ misrepresentations were untruthful
`
`and could not have been aware of the statements’ untruth because Plaintiffs had no access to
`
`Verified Complaint
`
`
`Page 17 of 35
`
`

`

`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 18 of 35
`
`data on the Crypto Fund’s portfolio. In May 2020, Powell requested information on the
`
`Crypto Fund’s underlying portfolio and the cost per unit of his investments but these requests
`
`have been refused or ignored.
`
`90.
`
`Defendants all participated in the sale of Crypto Fund investments, which are
`
`securities under the Exchange Act. Cutting coordinated these sales directly for himself and
`
`CTM. With regard to Lata, she also accepted investment funds into her personal PayPal
`
`account.
`
`91.
`
`Cutting was a control person of CTM under Exchange Act § 20(a), 15 U.S.C.
`
`§ 78t(a), as its sole manager and member.
`
`92.
`
`Lata was a control person of CTM under Exchange Act § 20(a), 15 U.S.C. §
`
`78t(a), in her role as an agent managing the sale of, soliciting sale of, accepting funds for, and
`
`communicating with investors regarding, securities.
`
`93.
`
`Defendants’ actions of repeatedly misstating the value, gain, and liquidity of
`
`securities amounted to a manipulative or deceptive device or contrivance in connection with
`
`the sale of securities under Exchange Act § 10(b).
`
`94.
`
`Lata and Cutting aided and abetted each other and CTM under Exchange Act
`
`§ 20(e), 15 U.S.C. § 78t(e), by knowingly and/or recklessly providing substantial assistance in
`
`making false and misleading representations to investors and prospective investors.
`
`95.
`
`Defendants are all jointly and severally liable to Plaintiffs for all damages
`
`proximately caused by their fraudulent misdeeds in amounts no less than the following:
`
`a.
`David Powell: $519,254.51, with interest accruing at the Idaho
`statutory rate of $101.18 per diem as of 7/10/2020; and
`
`Verified Complaint
`
`
`Page 18 of 35
`
`

`

`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 19 of 35
`
`b.
`Merav Knafo: $115,731.43, with interest accruing at the Idaho statutory
`rate of $15.78 per diem as of 7/10/2020.
`
`COUNT II
`SALE OF UNREGISTERED SECURITIES
`(All Defendants)
`
`Plaintiffs repeat and reallege all the preceding paragraphs as if fully set forth
`
`Plaintiffs’ claim for sale of unregistered securities under Securities Act
`
`herein.
`
`96.
`
`97.
`
`§ 12(a)(1) applies only to the security transactions occurring within 1 year prior to the filing of
`
`this Complaint, pursuant to the statute of limitation, Securities Act § 13, 15 U.S.C. § 77m.
`
`98. On information and belief, Defendants did not begin offering securities to the
`
`public until 2018, satisfying the 3-year statute of repose, Securities Act § 13, 15 U.S.C. § 77m.
`
`Defendants sold securities to 15 purchasers at minimum and accepted investment through a
`
`web portal from any member of the public. Defendants made no effort to:
`
`a.
`verify purchasers’ identities or other information, except as necessary
`to facilitate payments;
`
`b.
`limit the Crypto Fund to investors with whom Defendants had a prior
`relationship—in fact, neither Plaintiffs had meaningful contact with Defendants prior
`to making their investments through a publicly accessible online portal;
`
`c.
`
`d.
`
`e.
`investment.
`
`make any disclosures or warning statements to prospective investors;
`
`gauge the sophistication of prospective investors; or
`
`ensure that investors had the means to sustain a loss of their
`
`99.
`
`Defendants passed title to the securities to Plaintiffs and/or solicited Plaintiffs’
`
`purchase of securities by, among other things, repeatedly sending messages with links to
`
`Verified Complaint
`
`
`Page 19 of 35
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`

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`Case 1:20-cv-00352 Document 1 Filed 07/15/20 Page 20 of 35
`
`deposit funds and other assets, making a deposit form available, coordinating transfers of value,
`
`and accepting transfers of value, sometimes (in the case of Lata) into personal PayPal accounts.
`
`100. Defendants therefore sold and offered to sell securities for which no
`
`registration statement was in effect or has ever been in effect.
`
`101. No exemption to registration applies to the securities, which were offered to
`
`the public regardless of