CFTC cracks down on digital asset arbitrage scammer

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The United States Commodity Futures Trading Commission (CFTC) has issued an order against Arbitraging.co, an arbitrage company that allegedly defrauded customers in a digital asset trading scheme.

In a statement, Commissioner Kristin N. Johnson claimed that during a one-year period starting in May 2018, Jeremy Rounsville claimed to offer arbitrage trading for digital assets through Arbitraging.co. He told his clients that he employed a “highly advanced arbitrage bot” that could execute the trades for them. However, this bot, which he named ‘aBot’ was a hoax and never executed any trades.

⁦Once More ⁦@CFTC⁩ DOE is on the beat – policing to prevent fraudsters soliciting and preying on crypto investors via social media. Such schemes hurt investors, create risks that threaten market integrity, and undermine legitimate entrepreneurs. https://t.co/S87cOcrV6p

— Kristin N. Johnson (@CFTCjohnson) November 4, 2022

According to the commissioner, the arbitrage scam demonstrates the importance of digital asset market regulations.

“Both robust customer protections and market integrity-oriented regulations should be among our highest priorities in digital asset markets, each should be promptly forthcoming,” she stated.

Johnson said that while Arbitraging.co simply lured investors with false representations, an increasing number of investors are likely to fall for such scams as “technology supporting complex trading strategies is already readily accessible.”

In a separate statement, Commissioner Christy Goldsmith concurred with the CFTC order against Rounsville and his company. However, Goldsmith revealed she is against the CFTC’s “routine practice of allowing a defendant to settle without admitting to his illegal actions.”

In most enforcement actions, federal agencies, including the CFTC and Securities and Exchange Commission (SEC), allow defendants to settle while neither admitting nor denying the accusations. However, according to Goldsmith, this deters the critical public interest goals of federal law enforcement programs, namely accountability, justice, and deterrence.

“Promoters of fraudulent crypto schemes should not get a free pass from admitting their wrongdoing; they must be held publicly accountable. Requiring the defendant to admit to his wrongdoing helps deter other crypto-fraud schemes from promoting fraud schemes and victimizing retail investors,” she believes.

While the CFTC’s jurisdiction over Arbitraging.co is clear, in some other cases, it’s not as apparent, and it has led to a ‘cold war’ with Gary Gensler’s SEC over who should oversee the digital asset industry. For years, the SEC has been the de facto regulator, but with the support of some lawmakers and many ‘crypto bros,’ the CFTC seems to be having the upper hand currently. And with the digital asset industry having forked out over $2.5 billion as of June last year in fines, the two are unlikely to give up in their pursuit of supremacy over this lucrative industry.

Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets