Former Deutsche Bank associate hit with criminal and civil charges over digital asset fraud

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Former Deutsche Bank associate Rashawn Russell has been charged by both the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DoJ) over his alleged orchestration of a digital asset fraud scheme.

Both charges arise in connection to Russell’s R3 Crypto Fund. According to the DoJ’s indictment, between November 2020 and August 2022, Russell’ engaged in a scheme to defraud investors by inducing them to invest with him based on false promises, that, among other things, Russell would use the investors’ assets for cryptocurrency investments and that the investors would earn large, and sometimes guaranteed, returns from those cryptocurrency investments.

Similarly, according to the CFTC’s press release:

“Russell solicited retail investors to contribute bitcoin, ether, and fiat currency to invest in his purported proprietary digital assets trading fund. Russell guaranteed no losses to investors and, in some instances, a minimum 25 percent return on investment.”

Russell would represent to prospective investors that the R3 Crypto Fund was a legitimate investment, but is alleged to have lied more or less every step of the way. He would tell investors that the fund operated on a three-month investment cycle and that he could not accept new contributions after the start of each cycle, but once each cycle concluded, they would be given a choice to either take their profits or roll their investments over to the next one. However, the charges say that talk of ‘investment cycles’ were intended solely to give the appearance of ‘structure and authenticity’ to the scheme: in reality, investors were all told different dates for the same cycles, and some overlap with other cycles.

Further, he would send investors falsified proof of the money being generated by the fund. One of the many examples cited in the CFTC’s charges is of Russell showing a worried investor screenshot displaying Russell’s bank accounts filled with hundreds of thousands of dollars—in reality, at that time, Russell had less than $60,000 in both of these accounts, $50,000 of which consisted of money he had just received from this same investor.

When faced with withdrawal requests from investors, Russell would offer a gluttony of excuses, including that he lost his phone, was consulting with an accountant on the tax implications of the fund’s produce, and that his bank account had been flagged owing to the massive gains flowing inward.

According to both sets of charges, Russell misappropriated at least $1 million in investors’ assets via the scheme, using them to pay personal expenses, pay gambling institutions and make ‘Ponzi-like payments’ to prior investors.

The Department of Justice’s charge is wire fraud, a criminal charge with a penalty of up to 20 years in prison. The DoJ arrested Russell on Monday, and the former banker pleaded not guilty on Tuesday.

The day after Russell’s arrest, the CFTC filed a civil enforcement action against him. The CFTC accuses Russell of fraudulently soliciting retail investors to invest in a digital asset trading fund. They seek a permanent injunction against Russell and his associates, preventing them from trading via registered entities and transacting in digital asset commodities or ‘commodity interests’ either on their own behalf or on behalf of others. They are also demanding that Russell return all proceeds from the scheme, pay restitution to the victims and pay monetary penalties up to the statutory maximum of $214,514.

United States Attorney for the Eastern District of New York Breon Peace said in announcing the DoJ action:

“As alleged, Russell turned the demand for cryptocurrency investments into a scheme to defraud numerous investors in order to fund his lifestyle. This office will continue to aggressively pursue fraudsters perpetrating these schemes against investors in the digital asset markets.”

Law & Order: Regulatory Compliance for Blockchain & Digital Assets