Commodity Futures Trading Comm'n v. Fintech Inv. Grp.
| Decision Date | 14 December 2021 |
| Docket Number | 6:20-cv-652-WWB-EJK |
| Parties | COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. FINTECH INVESTMENT GROUP, INC., COMPCOIN LLC and ALAN FRIEDLAND, Defendants. |
| Court | U.S. District Court — Middle District of Florida |
THIS CAUSE is before the Court on Plaintiff's Motion for Summary Judgment (Doc. 53), Defendants' Response in Opposition (Doc. 59), and Plaintiff's Reply (Doc. 62). However, Defendants' Response in Opposition was not timely filed, (see Doc. 56), and fails to comply with Local Rule 3.01(b) and this Court's January 13, 2021 Standing Order. Therefore, the Response in Opposition will be stricken and will not be considered by this Court. For the reasons set forth below, Plaintiff's Motion will be denied.
Defendant Alan Friedland is the founder and sole owner of Defendants Fintech Investment Group, Inc. (“Fintech”) and Compcoin LLC (collectively, “Defendants”). (Doc 1, ¶ 11; Doc. 22, ¶ 11). Friedland controlled and directed the activities of Fintech and Compcoin LLC. (Doc 1, ¶ 11; Doc. 22, ¶ 11). Fintech, from its establishment as a corporation in March 2016 to its dissolution in September 2019, was registered with Plaintiff, the Commodity Futures Trading Commission (“CFTC”), as a commodity trading advisor (“CTA”). (Doc 1, ¶ 12; Doc 22, ¶ 12). Friedland also was registered with the CFTC as an associated person of Fintech and listed as its principal. (Doc 1, ¶ 11; Doc. 22, ¶ 11). Compcoin LLC, formed in June 2015 and dissolved in September 2019, was never registered with the CFTC. (Doc. 1, ¶ 13; Doc. 22, ¶ 13). Compcoin LLC marketed and sold a digital asset called Compcoin, which offered investors access to ART, Fintech's foreign exchange (“forex”) trading program. (Doc. 53-2 at 2-27; see also Doc. 53-3). In their advertisements and marketing, Defendants represented that Fintech, as a National Futures Association (“NFA”) member and licensed CTA, operated Compcoin LLC and managed ART. (Doc. 53-6 at 2; Doc. 53-7 at 2; Doc. 53-10 at 12; Doc. 53-46 at 101:1524). Friedland explained the relationship between Compcoin, ART, and Fintech as follows: “Compcoin controlled access to the A[RT] trading program and Fintech was going to run the trading program.” (Doc. 53-46 at 65:16-18).
Defendants marketed Compcoin as a “digital asset” distinct from cryptocurrency because it did not hold an equivalent value in real currency or act as a substitute for real currency. (Doc. 53-2 at 7, 22; Doc. 53-3 at 11). Rather, Compcoin LLC's website explained that “Compcoin ha[d] an intrinsic value that [wa]s based upon the quarterly cash returns of its investment technology.” (Doc. 53-3 at 34). Compcoin promotional materials, including its white paper advertisement and a paid press release, [2] provided that “the primary function of Compcoin [wa]s to grant investors access to ART - a proprietary, automated, algorithmic foreign currency exchange (forex) trading platform developed by [Fintech].” (Doc. 53-2 at 6; Doc. 53-21 at 2). In fact, ART was accessible exclusively with Compcoins, which could be purchased directly from Compcoin LLC or by trading digital currency on an exchange. (Doc. 53-2 at 17; Doc. 53-3 at 9, 26, 42; Doc. 53-9 at 150:21-24).
Compcoin LLC's website advertised ART as a “trading platform . . . [that] [a]utomatically executes and manages foreign currency trades.” (Doc. 53-3 at 37). The website also boasted, “[r]eported results . . . on par with other auto-trading algorithms used by large hedge funds unavailable to most investors” and that ART was “[c]utting-edge trading technology [that] levels the investing playing field by granting access to advanced trading technologies once available exclusively to elite investors[.]” (Id. at 3637). Compcoin LLC's white paper further advertised that “ART's high success rate at predicting USD/EUR forex trades, coupled with the high rate of return from these trades, will stimulate demand among investors and forex traders to purchase and use Compcoin - specifically to gain access to ART.” (Doc. 53-2 at 7). The white paper indicated that Compcoin's founders felt that ART “was ready for release on the open market.” (Id.). Friedland was also quoted in a paid press release stating, “After eight years of testing, which resulted in highly successful predictions and high returns, we believe Compcoin is ready to generate profits for forex traders on the open market.” (Doc. 53-23 at 3-4).
From 2016 to 2018, Compcoin LLC raised approximately $1.6 or $1.7 million by selling Compcoins, including through its Initial Coin Offering (“ICO”) in June 2017. (Doc. 53-9 at 128:12-129:16). Many Compcoin purchasers testified that they purchased Compcoins, at least in part, to utilize ART for forex trading. (Doc. 53-11 at 23:10-11; Doc. 53-12 at 35:3-9; Doc. 53-13 at 29:7-18). However, as of April 2021, none of the Compcoin purchasers had received access to ART. (Doc. 53-9 at 118:4-17). Shortly after the ICO, Fintech sought NFA approval of its required disclosure document to solicit clients to trade forex using ART. (Doc. 53-28 at 2); see also 17 C.F.R. § 4.31 (). Fintech submitted modified versions of its disclosure document for NFA approval at least eight times from August 2017 to April 2018 but never received approval. (Doc. 53-14 at 52:16-20; see generally Doc. Nos. 53-24, 53-28, 53-29, 53-30, 53-31, 53-32, 53-33, 53-34). NFA also communicated with Friedland by telephone regarding his business ventures. (See, e.g., Doc. 53-9 at 119:19-120:14; Doc. 53-14 at 38:18-25). At some point between 2016 and 2018, Compcoin was listed on at least one digital asset exchange, but by mid-2018, Compcoin was delisted by all exchanges. (Doc. 53-9 at 188:9-19; see also Doc. 53-10 at 13; Doc. 53-45 at 2).
Summary judgment is appropriate when the moving party demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material if it may “affect the outcome of the suit under the governing law.” Id. “The moving party bears the initial burden of showing the court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial.” Allen v. Bd. of Pub. Educ., 495 F.3d 1306, 1313-14 (11th Cir. 2007). Stated differently, the moving party discharges its burden by showing “that there is an absence of evidence to support the nonmoving party's case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
However, once the moving party has discharged its burden, “Rule 56(e) . . . requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.” Id. at 324 (quotation omitted). The nonmoving party may not rely solely on “conclusory allegations without specific supporting facts.” Evers v. Gen. Motors Corp., 770 F.2d 984, 986 (11th Cir. 1985). Nevertheless, “[i]f there is a conflict between the parties' allegations or evidence, the [nonmoving] party's evidence is presumed to be true and all reasonable inferences must be drawn in the [nonmoving] party's favor.” Allen, 495 F.3d at 1314.
“If a party . . . fails to properly address another party's assertion of fact . . . the court may . . . consider the fact undisputed for purposes of the motion.” Fed.R.Civ.P. 56(e)(2). However, “the district court cannot base the entry of summary judgment on the mere fact that the motion was unopposed, but, rather, must consider the merits of the motion.” United States v. One Piece of Real Prop. Located at 5800 SW 74th Ave., Mia., Fla., 363 F.3d 1099, 1101 (11th Cir. 2004). “At the least, the district court must review all of the evidentiary materials submitted in support of the motion for summary judgment, ” and “must ensure that the motion itself is supported by evidentiary materials.” Id. at 1101-02.
The CFTC brought a seven-count civil enforcement action against Defendants alleging violations of the Commodity Exchange Act, 7 U.S.C. § 1 et seq. (“CEA”) and its accompanying regulations, 17 C.F.R. § 1.1 et seq. The CFTC seeks summary judgment as to liability on all seven counts.
The CFTC alleges that Defendants committed fraud in violation of 7 U.S.C. §§ 6b and 9, and their corresponding regulations, 17 C.F.R. §§ 5.2(b), 180.1, by making material misrepresentations and omissions to potential investors. “[T]he CEA is a remedial statute that serves the crucial purpose of protecting the innocent individual investor-who may know little about the intricacies and complexities of the commodities market-from being misled or deceived.” Commodity Futures Trading Comm'n v R.J. Fitzgerald & Co., 310 F.3d 1321, 1329 (11th Cir. 2002). Section 6b makes it “unlawful . . . for any person . . . in connection with . . . any contract of sale of any commodity for future delivery . . . to cheat or defraud or attempt to cheat or defraud the other person . . . [or] willfully to make or cause to be made . . . any false report or statement . . . [or] willfully to deceive or attempt to deceive the other person by any means whatsoever.” 7 U.S.C. § 6b(a)(2)(A)-(C); see also 17 C.F.R. § 5.2(b) (). Similarly, § 9 makes it “unlawful for any...
To continue reading
Request your trial