CFTC files charges against Mosaic Exchange
The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Mosaic Exchange Limited and Sean Michael.
According to the CFTC’s complaint, submitted at the Florida Southern District Court on September 26, 2023, from approximately February 2019 to in or about June 2021 (the “Relevant Period”), Mosaic Exchange, through its officers, agents, and employees, and Sean Michael directly, fraudulently solicited and induced individuals in the United States and other countries to open accounts with and transfer bitcoin (“BTC”) or other funds to defendants for Mosaic to trade futures contracts and/or swaps on, and engage in spot transactions and transactions on a leveraged or margined basis in, digital asset commodities on customers’ behalves through pooled and individual accounts.
To induce customers and prospective customers to open accounts with Mosaic, Mosaic, while acting as a Commodity Pool Operator (CPO”, and Michael, while acting as an Associated Person (AP) of a CPO, falsely represented and advertised, among other things, that Mosaic:
- was a cryptocurrency trading platform with tens of millions of dollars in assets under management;
- offered a Mosaic-designed proprietary trading algorithm to trade, according to Mosaic ,“futures,” “spot” and/or “leveraged” digital asset commodity contracts that was purportedly 82% accurate, and purportedly had profit margins at various times ranging from “20% [to] 60% per month” and “10% to 50+% per month”; and
- had partnerships or broker agreements with certain cryptocurrency trading exchanges.
In reality, contrary to Defendants’ representations, Mosaic was not a trading platform with tens of millions of dollars of assets under management, Mosaic did not have the track record of trading profitability as represented but instead it lost money trading for customers, and Mosaic did not have partnership or broker agreements with the cryptocurrency exchanges that Defendants advertised they had.
In addition, Defendants misappropriated some of the customer funds to pay for Michael’s restaurant and travel expenses.
As a result of Defendants’ fraudulent scheme, at least 17 persons located in the United States, including Florida, and other countries gave Defendants hundreds of thousands of dollars’ worth of BTC or other funds for Defendants to engage in trading related to BTC and other digital asset commodities through Mosaic on the customers’ behalves. Defendants traded futures contracts and/or swaps and engaged in spot and leveraged or margined retail commodity transactions in BTC and other digital asset commodities for many customers, and many lost most if not all of their money.
The CFTC alleges that by this conduct, Defendants have engaged in fraudulent acts and practices in violation of Sections 4b(a)(2)(A) and (C), 4o(1)(A) and (B), 6(c)(1) of the Act, 7 U.S.C. §§ 6b(a)(2)(A) and (C), 6o(1)(A) and (B), 9(1), and Commission Regulations (“Regulations”) 4.41 and 180.1(a), 17 C.F.R. §§ 4.41, 180.1(a) (2022).
At all relevant times, the acts of Michael and other Mosaic agents and employees were committed within the scope of their employment, agency, or office with Mosaic. Therefore, pursuant to Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B), and Regulation 1.2, 17 C.F.R. § 1.2 (2022), Mosaic is liable as principal for their actions in violation of the CEA and Regulations.
Also, at all relevant times, Michael was the controlling person of Mosaic and knowingly induced the underlying violations of the CEA and Regulations or failed to act in good faith. Therefore, pursuant to Section 13(b) of the Act, 7 U.S.C. § 13c(b), Michael is liable as the controlling person for the actions of Mosaic in violation of the CEA and Regulations.
The CFTC argues that, unless permanently restrained and enjoined by this Court, Defendants are likely to continue to engage in the acts and practices alleged in this Complaint, or in similar acts and practices.
Accordingly, pursuant to Sections 2(c)(2)(D) and 6c of the Act, 7 U.S.C. §§ 2(c)(2)(D) and 13a-1, the Commission brings this action to enjoin Defendants’ unlawful acts and practices and to compel their compliance with the Act and Regulations, and to further enjoin Defendants from engaging in any commodity interest or digital asset commodity related activity.
Additionally, the Commission seeks civil monetary penalties, restitution, disgorgement of Defendants’ ill-gotten gains, and ancillary remedial relief, including, but not limited to, permanent trading and registration bans, rescission, fees and costs, pre- and post-judgment interest, and such equitable relief as this Court may deem necessary or appropriate.