Commodity Futures Trading Comm'n v. Fingerhut

• Decision Date: 07 January 2021
• Docket Number: CASE NO.: 1:20-cv-21887-GAYLES
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. DANIEL FINGERHUT, DIGITAL PLATINUM, INC., DIGITAL PLATINUM, LTD., HUF MEDIYA (a/k/a HOOF MEDIA), TAL VALARIOLA, and ITAY BARAK, Defendants, AICEL CARBONERO, Relief Defendant.
• Court: U.S. District Court — Southern District of Florida

COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. DANIEL FINGERHUT, DIGITAL PLATINUM, INC., DIGITAL PLATINUM, LTD.,HUF MEDIYA (a/k/a HOOF MEDIA), TAL VALARIOLA, and ITAY BARAK, Defendants,AICEL CARBONERO, Relief Defendant.

CASE NO.: 1:20-cv-21887-GAYLES

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

January 7, 2021

ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION

THIS CAUSE comes before the Court on Plaintiff Commodity Futures Trading Commission's (the "CFTC" or the "Commission") Expedited Motion for Preliminary Injunction and Other Equitable Relief (the "Motion") [ECF No. 11]. In its Motion, the Commission moves for entry of a preliminary injunction against Defendants Daniel Fingerhut ("Fingerhut"), Digital Platinum, Inc. ("DPI"), Digital Platinum, Ltd. ("DPL"), Huf Mediya ("Huf"), Tal Valariola ("Valariola"), and Itay Barak ("Barak") and Relief Defendant Aicel Carbonero ("Carbonero" or "Relief Defendant") (hereinafter collectively referred to as "Defendants") for alleged violations of sections of the Commodity Exchange Act (the "Act"), 7 U.S.C. §§ 1-26, and accompanying regulations (the "Regulation(s)"), 17 C.F.R. pts. 1-190. The Court has reviewed the Motion and the record, heard oral arguments on the Motion via videoconference in August and September 2020, and is otherwise fully advised. The Court concludes that the Commission has made a proper showing that Defendants, by and through their agents, principals, and control persons, violated core anti-fraud provisions of the Act and Regulations by operating a fraudulent solicitation scheme involving binary options and digital assets. Accordingly, a preliminary injunction is necessary to preserve the status quo pending the resolution of this litigation.

I. PROCEDURAL BACKGROUND

On May 5, 2020, the Commission filed a four-count Complaint against the Defendants. [ECF No. 1], amended by [ECF No. 101]. The Complaint sets forth the following allegations:

1) Count I claims Fingerhut, DPL, Valariola, and Barak violated Section 4c(b) of the Act, 7 U.S.C. § 6c(b), and Regulation 32.4, 17 C.F.R. § 32.4 ("Options Fraud").

a) Section 4c(b) of the Act makes it unlawful for any person to offer to enter into, enter into, or confirm the execution of, any transaction involving any commodity regulated under the Act which is of the character of, or is commonly known to the trade as, inter alia, an "option", "bid", "offer", "put", or "call", contrary to any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe.

b) Regulation 32.4 provides that, in or in connection with an offer to enter into, the entry into, or the confirmation of the execution of, any commodity option transaction, it shall be unlawful for any person directly or indirectly: (a) to cheat or defraud or attempt to cheat or defraud any other person; (b) to make or cause to be made to any other person any false report or statement thereof or cause to be enteredfor any person any false record thereof; or (c) to deceive or attempt to deceive any other person by any means whatsoever.

2) Count II alleges Fingerhut violated Section 4o(1) of the Act, 7 U.S.C. § 6o(1), which makes it unlawful for a Commodity Trading Advisor ("CTA") or associated person of a CTA using the instrumentalities of interstate commerce directly or indirectly to: (a) employ any device, scheme, or artifice to defraud any client or participant or prospective client or participant; or (b) engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant ("CTA Fraud");

3) Count III alleges Fingerhut, DPL, and DPI violated: (1) Section 6c(1) of the Act, 7 U.S.C. § 9(1) and Regulation 180.1(a)(1)-(3), 17 C.F.R. § 180.1(a)(1)-(3) ("Swaps and Commodities Fraud").

a) Section 6c(1) of the Act provides that it is unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in connection with any swap, or a contract of sale of any commodity in interstate commerce, any manipulative or deceptive device or contrivance, in contravention of such rules and regulations as the Commission shall prescribe.

b) Regulation 180.1(a)(1)-(3) 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: (1) use or employ or attempt to use or employ any manipulative device, scheme, or artifice to defraud; (2) make or attempt to make any untrue or misleading statement ofmaterial fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading; or (3) 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; and

4) Count IV claims Fingerhut made false or misleading statements to the Commission in violation of Section 6(c)(2) of the Act, 7 U.S.C. § 9(2), which provides, in relevant part, that it shall be unlawful for any person to make any false or misleading statement of a material fact to the Commission, including any other information relating to a swap or a contract of sale of a commodity in interstate commerce, if the person knew or reasonably should have known the statement to be false or misleading. Id.

On May 6, 2020, the Commission filed the instant Motion for a preliminary injunction and moved for the appointment of a temporary receiver. [ECF Nos. 11, 12]. Following a telephonic status conference on May 7, 2020, the Court appointed Melanie Damian as a temporary receiver (the "Temporary Receiver") for Defendants and any affiliates or subsidiaries owned or controlled by Defendants, as well as all of the funds, properties, premises, accounts, income, now or hereafter due or owing to the Defendants, and other assets directly or indirectly owned, beneficially or otherwise, by the Defendants. [ECF No. 33]. On July 13, 2020, the Court granted the Commission a temporary statutory restraining order ("SRO") pursuant to Section 6c(a) of the Act, 7 U.S.C. § 13a-1(a)-(b), and in accordance with Federal Rule of Civil Procedure 65. [ECF Nos. 58, 129].

The Court held a multi-day evidentiary hearing on the Motion in August and September 2020. The Commission relied on 72 Exhibits, see [ECF No. 157-1], and the testimony of six witnesses: (1) William Berry, a videographer who created many of the videos used by Defendants in their scheme; (2) Defendant Fingerhut; (3) Jay Passerino, a defendant in a related action forinternational fraud based on overlapping facts with the instant action, Commodity Futures Trading Comm'n v. Atkinson et al., No. 18-CIV-23992 (S.D. Fla. Sept. 27, 2018) ("Atkinson litigation"); (4) Joseph Patrick, the Commission investigator; (5) Relief Defendant Aicel Carbonero; and (6) Receiver Melanie Damian, [ECF Nos. 171, 175, 179].

II. FINDINGS OF FACT

A. The Parties

The Commission is the independent federal regulatory agency that administers and enforces the Act and Regulations promulgated thereunder. See 7 U.S.C. §§ 1-27.

Defendant Fingerhut engaged in affiliate marketing as an employee of All In Publishing, LLC ("AIP") from at least 2014 through 2016, primarily by creating and disseminating marketing material related to binary options trading systems. [ECF No. 71-1 at 14]; [ECF No. 175 at 25-27]. He subsequently worked on behalf of Valariola, Barak, DPI, DPL, and Huf (collectively, "Digital Platinum Defendants") from 2016 through August 2018, where he focused on affiliate marketing concerning digital assets trading systems. [ECF No. 71-1 at 24-25]; [ECF No. 175 at 49-50, 67]. During that time, Fingerhut "controlled the marketing part of the business, pretty much from A to Z," which included creating content, hiring and firing employees, reviewing and editing content created by subordinate employees, and analyzing data. [ECF No. 175 at 49-53]. As of May 22, 2019, Fingerhut continued to work in affiliate marketing. [ECF No. 71-1 at 355].

Defendant DPL is an Israeli company with its principal place of business in Tel Aviv, Israel. Id. at 9; [ECF No. 175 at 42]. From at least October 2013 through at least November 2016, DPL worked directly with United States brokers to assist AIP in marketing its binary options campaigns. [ECF No. 71-1 at 23]; [ECF No. 175 at 31]. DPL supplied AIP with the trading systems used in the campaigns and made (or directed others to make) payments to AIP's United Statesbank accounts for creating solicitations of the digital asset campaigns in the United States. [ECF No.71-1 at 23, 39]; [ECF No. 175 at 39-42, 188-190]. DPL is the parent company to DPI and Huf. [ECF No. 175 at 42-43].

Defendant DPI is a Florida corporation under the DPL umbrella with a principal place of business in Miami, Florida. [ECF No. 71-1 at 9]; [ECF No. 175 at 42]. Between October 2016 and August 2018, DPI leased office space in Florida. [ECF No. 71-1 at 25]; [ECF No. 175 at 46-47]. During that same time, Fingerhut managed DPI's digital asset marketing in Florida on behalf of the Digital Platinum Defendants. [ECF No. 71-1 at 24-25]. DPI has never been registered with the Commission in any capacity. Id. at 9.

Defendant Huf, a Bulgarian company, is also under the DPL business umbrella. [ECF No. 175 at 42-43]. At the direction of Defendant Valariola, Fingerhut executed a contract whereby Fingerhut would address invoices to Huf for work performed by DPI and DPL. Id. at 64. Beginning in August 2017, Huf sent payments to Fingerhut's and DPI's bank accounts in the United States as compensation for their digital asset affiliate marketing campaigns. [ECF No. 71-1 at 15, 25]. Huf has never registered with the Commission. Id. at 10.

At all relevant times, Defendants...