Commodity Futures Trading Comm'n v. McDonnell (332 F. Supp. 3d 641, 2018)

United States District Court for the Eastern District of New York 2018-08-28

Judiciary and Judicial Procedure Agriculture

Citations

Full opinion text

Jack B. Weinstein, Senior United States District Judge

Table of Contents

I. Introduction and Overview...648

II. Fact...653

A. Procedural History...653

B. McDonnell's Scheme to Defraud with Virtual Currencies...658

i. Parties...658

ii. CabbageTech, Corp. d/b/a Coin Drop Markets...658

iii. Array of Accounts to Execute Fraud...658

iv. Fraud Involving Virtual Currency Trading Advice...660

v. Fraud Involving Purchase and Trading of Virtual Currency...664

vi. Fraud Involving Misappropriated Customer Funds...667

vii. McDonnell's Control...671

viii. Testimony of Victims...672

a. Junor Taylor...672

b. Martin Newman...687

c. Richard Brewell...693

d. Anthony Dimovski...701

III. Law...716

IV. Relief...725

A. Permanent Injunction...725

B. Restitution...726

C. Civil Monetary Penalties...727

V. Conclusion...728

I. Introduction and Overview

1. This memorandum constitutes the court's findings of fact and conclusions of law pursuant to Federal Rules of Civil Procedure 52(a) and 55(b)(2), and equity and common law and applicable administrative law, 7 U.S.C. § 13a-1, following a bench trial held from July 9 through July 12, 2018. See, infra , ¶¶ 32-42.

2. Plaintiff Commodity Futures Trading Commission ("CFTC" or "Commission") seeks decrees and judgments against Defendants Patrick K. McDonnell ("McDonnell") and CabbageTech, Corp. d/b/a Coin Drop Markets ("CabbageTech," and together with McDonnell, "Defendants") for violations of Section 6(c)(1) of the Commodity Exchange Act (the "Act" or "CEA"), 7 U.S.C. § 9(1), and Commission Regulation ("Regulation") 180.1(a), 17 C.F.R. § 180.1(a). The CFTC seeks a permanent injunction as well as an award of restitution and imposition of civil monetary penalties against Defendants.

3. The Commission relies for its jurisdiction on 7 U.S.C. § 9(1). It reads as follows:

It shall be 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, or for future delivery on or subject to the rules of any registered entity, any manipulative or deceptive device or contrivance , in contravention of such rules and regulations as the Commission shall promulgate by not later than 1 year after July 21, 2010, provided no rule or regulation promulgated by the Commission shall require any person to disclose to another person nonpublic information that may be material to the market price, rate, or level of the commodity transaction, except as necessary to make any statement made to the other person in or in connection with the transaction not misleading in any material respect.

(emphasis added).

4. The court's jurisdiction to grant relief is set forth in 7 U.S.C. § 13a-1(a) as follows:

Whenever it shall appear to the Commission that any registered entity or other person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of this chapter or any rule, regulation, or order thereunder, or is restraining trading in any commodity for future delivery or any swap, the Commission may bring an action in the proper district court of the United States or the proper United States court of any territory or other place subject to the jurisdiction of the United States, to enjoin such act or practice, or to enforce compliance with this chapter, or any rule, regulation or order thereunder, and said courts shall have jurisdiction to entertain such actions: Provided, That no restraining order (other than a restraining order which prohibits any person from destroying, altering or disposing of, or refusing to permit authorized representatives of the Commission to inspect, when and as requested, any books and records or other documents or which prohibits any person from withdrawing, transferring, removing, dissipating, or disposing of any funds, assets, or other property, and other than an order appointing a temporary receiver to administer such restraining order and to perform such other duties as the court may consider appropriate) or injunction for violation of the provisions of this chapter shall be issued ex parte by said court.

5. Civil monetary penalties are provided as follows:

In any action brought under this section, the Commission may seek and the court shall have jurisdiction to impose, on a proper showing, on any person found in the action to have committed any violation-(A) a civil penalty in the amount of not more than the greater of $100,000 or triple the monetary gain to the person for each violation; or

(B) in any case of manipulation or attempted manipulation in violation of section 9, 15, 13b, or 13(a)(2) of this title, a civil penalty in the amount of not more than the greater of $1,000,000 or triple the monetary gain to the person for each violation.

7 U.S.C. § 13a-1(d)(1).

6. Restitution and disgorgement are allowed as follows:

In any action brought under this section, the Commission may seek, and the court may impose, on a proper showing, on any person found in the action to have committed any violation, equitable remedies including--

(A) restitution to persons who have sustained losses proximately caused by such violation (in the amount of such losses); and

(B) disgorgement of gains received in connection with such violation.

7 U.S.C. § 13a-1(d)(3).

7. In support of § 9(1) of the United States Code, the Commission has adopted 17 C.F.R. § 180.1(a) dealing with frauds. 17 C.F.R. § 180.1(a) provides:

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 of a material fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading;

(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; or,

(4) Deliver or cause to be delivered, or attempt to deliver or cause to be delivered, for transmission through the mails or interstate commerce, by any means of communication whatsoever, a false or misleading or inaccurate report concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce, knowing, or acting in reckless disregard of the fact that such report is false, misleading or inaccurate. Notwithstanding the foregoing, no violation of this subsection shall exist where the person mistakenly transmits, in good faith, false or misleading or inaccurate information to a price reporting service.

8. A default has been entered by the Clerk of this court against CabbageTech. See Clerk's Certificate of Default as to Defendant CabbageTech, Corp., d/b/a Coin Drop Markets, ECF No. 164, Aug. 01, 2018; see also Minute Entry for Proceedings, ECF No. 40, Mar. 6, 2018. It failed to appear with an attorney as required of corporations. See Jones v. Niagara Frontier Transp. Auth. , 722 F.2d 20, 22 (2d Cir. 1983) ("[I]t is established that a corporation, which is an artificial entity that can only act through agents, cannot proceed pro se."). It also failed to file an answer or otherwise move with respect to CFTC's complaint. See ECF No. 164.

9. In extensive memoranda and orders, the court has found the Commission has standing and authority to bring this action for fraud involving virtual currencies (also referred to commercially as "cryptocurrencies," "crypto," "crypto coins," "digital currencies," and "digital tokens"). See, e.g., Commodity Futures Trading Comm'n v. McDonnell , 287 F.Supp.3d 213, 228 (E.D.N.Y. 2018), adhered to on denial of reconsideration, No. 18-CV-361, 2018 WL 3435047 (E.D.N.Y. July 16, 2018) ; Steven Russolillo et al., Digital Currencies Tumble , Wall St. J., Aug. 15, 2018, at A1. Virtual currency may be regulated by the CFTC as a commodity. McDonnell , 287 F.Supp.3d at 228. CFTC's broad statutory authority, Title 7 U.S.C. § 9(1), and regulatory authority, Title 17 C.F.R. § 180.1, extends to fraud or manipulation in the virtual currency derivatives market and its underlying spot market. Id. at 229.

10. The litigation has been particularly difficult to administrate because McDonnell has appeared pro se despite various attempts of the court to explain why he needs counsel. He has appeared in court intermittently. See Trial Tr. 1:20-22, 146:20-22, 296:20-22, 426:20-22.

11. The court has urged defendant to retain counsel on various occasions, but he has refused to do so. He was referred by this court to the Eastern District's City Bar Justice Center's Pro Se Legal Assistance Project ("Clinic"), with whom he met on April 23, 2018. See Ltr. from Clinic, ECF No. 151, July 18, 2018. The Clinic attempted to place McDonnell with pro bono counsel and arranged meetings with two different law firms. But McDonnell cut himself off from the Clinic on May 9, 2018 after just two weeks, expressing skepticism that the firms were interested in his case. He expressed concern that the firms were using these meetings as "fishing expeditions" to "acquire [confidential] information" about him. Ltr. from Patrick K. McDonnell, ECF No. 129, July 13, 2018; see also Email correspondence between Patrick K. McDonnell and Clinic, ECF No. 137-1, July 16, 2018.

12. Despite defendant's contention that he lacks sufficient funds to hire counsel, McDonnell has yet to show in pauperis status warranting appointment of counsel. See, e.g. , Order, ECF No. 153, July 20, 2018.

13. The defendant's primary contention from the outset was that the Commission has no power to proceed against him, and that the case should be dismissed for lack of standing and authority to prosecute. On this point, one court has issued an opinion arguably supporting his view. See Commodity Futures Trading Comm'n v. Monex Credit Co. , 311 F.Supp.3d 1173 (C.D. Cal. 2018). The district court in that case was aware of, and distinguished, this court's prior opinion finding that the Commission had authority to bring the instant action against McDonnell. Id. at 1189 ; but see id. at 1185 ("Section 6(c)(1) unambiguously applies broadly to the use or attempted use of any manipulative or deceptive device 'in connection with any swap, or a contract of sale of any commodity in interstate commerce.' ").

14. If the Commission is ultimately found to be without jurisdiction and standing, this case should be dismissed. But, assuming that this court is correct in its finding of authority to prosecute by the Commission, the evidence demonstrates beyond a reasonable doubt a bold and vicious fraud executed by Defendants to illegally deprive large numbers of investors in different states and countries of their assets by trickery, false statements, and misappropriation of funds.

15. McDonnell's "boiler room" scheme defrauded members of the public by conning them into believing they were paying for, and receiving, bona fide advice on investing in virtual currencies-that is to say: expert virtual currency trading advice from him and an imaginary team of advisors-and that he was making purchases and sales of virtual currencies using their assets on their behalf and for their benefit. In reality, McDonnell never provided or intended to provide these services. Instead, he ruthlessly misled customers and misappropriated their funds.

16. As part of his scheme to defraud, McDonnell employed various pseudonyms, phone numbers, and bank accounts to conceal his identity and invented fictional employees, a fictional Wall Street office address, and fictional corporate titles to add an aura of legitimacy to his business. He used a wide array of social media accounts, promised his customers exorbitant gains and lifetime trading services, lied about his own trading record and experience as a virtual currency promoter and developer, and sent customers false reports showing imaginary large profits-all in a scheme to defraud his victims.

17. McDonnell skillfully built personal relationships with his customers, gaining their trust so that he could later defraud them. He offered them loss-leaders: hooking victims by offering entry into trading advice groups for relatively low starter fees and then enticing them to send additional funds to join more advanced trading advice groups, purchase virtual currencies from him, and allow him to trade in virtual currencies on their behalf using their assets.

18. When his victims caught onto this grift, McDonnell made a variety of false excuses, including a hacking of his accounts, to explain why he could not return their investments, eventually cutting-off all communication with his customers, destroying records, and hiding their funds.

19. The evidence proves beyond a reasonable doubt that McDonnell and CabbageTech engaged in a systematic pervasive fraudulent scheme between January and July 2017. The precision of Defendants' scheme, and his detailed method of operations, allows extrapolation backwards and forwards with respect to specific actions of fraud against specific customers (whether or not they testified). The evidence establishes a detailed modus operandi requiring the inference that all funds obtained by Defendants' illegal enterprise during the relevant time period must be attributed to Defendants' scheme to defraud.

20. Judgment is required by fact and law to be entered in favor of the Commission, including entry of a permanent injunction, an award of restitution, and imposition of civil monetary penalties.

21. A permanent injunction is warranted including, among other elements, a permanent ban on Defendants controlling trading accounts for themselves or other persons, or soliciting or accepting payments from persons for trading in their commodity interests, or giving trading advice, or applying for or claiming exemption from registration with the Commission or engaging in any activity requiring such registration or exempt from registration pursuant to Commission Regulation.

22. The Commission's request for the injunction to preclude McDonnell himself from dealing in assets owned by himself is granted. The Court of Appeals for the Second Circuit is rightly concerned with the capacity and ability of fraudulent operators such as the defendant to earn a living. United States v. Doe , 79 F.3d 1309, 1319 (2d Cir. 1996) ("[W]e carefully scrutinize unusual and severe conditions, such as one requiring the defendant to give up a lawful livelihood.") (internal quotations omitted); United States v. Jenkins , 854 F.3d 181, 195 (2d Cir. 2017) (vacating condition of supervised release where "the nature of these employment restrictions mean that, as a practical matter, he may never be employable"). The instant case is distinguishable from United States v. Doe and United States v. Jenkins . Those cases involved criminal defendants who could be constantly controlled while on supervised release. If those defendants deviated from the terms of their supervised release, it would be reported to the court by Probation, and the court could punish them with, among other things, incarceration. There is no such procedure in place for the monitoring of McDonnell by the Commission. It would be almost impossible for the Commission to supervise McDonnell's individual trading. The extreme nature of defendant's fraudulent activities, as well as his general mendacity, have demonstrated that he cannot be trusted to trade only on his own behalf. He has used a number of pseudonyms, such as Jason Flack and others, see , infra , at ¶ 94, and lied about his place of business, see , infra , at ¶ 56. In addition, he has utilized his wife to transfer assets owed to others to her for hiding abroad, see , infra , at ¶ 127, he has lied about the location of assets, see , infra , at ¶ 127-128, he has violated the terms of the preliminary injunction entered against him on March 6, 2018, see , infra , at ¶ 153, and he has refused to take responsibility for his actions that resulted in his victims being defrauded of assets worth hundreds of thousands of dollars, see , infra , at ¶ 246.

23. Restitution in the amount $290,429.29 is awarded in favor of CFTC against McDonnell. Defendant wrongfully received $292,693.54 in United States dollar and virtual currency transfers between February and June 2017. The final award of restitution requested by the Commission is reduced by $2,264.25, the value of a virtual currency transfer made by McDonnell to an investor in May 2017.

24. A civil monetary penalty of triple the monetary gain is appropriate in the instant case in view of the vicious defrauding of customers. See 7 U.S.C. § 13a-1(d)(1)(A). It is granted in the amount of $871,287.87.

II. Fact

A. Procedural History

25. On January 18, 2018, Patrick K. McDonnell and his company-fully owned and controlled by McDonnell-CabbageTech, were charged by the Commission with operating "a deceptive and fraudulent virtual currency scheme ... for purported virtual currency trading advice" and "for virtual currency purchases and trading ... misappropriat[ing investor] funds." See CFTC Complaint, ECF No. 1, at 1, Jan. 18, 2018.

26. The Complaint seeks injunctive relief, monetary penalties, and restitution of funds received in violation of Section 6(c)(1) of the CEA. Id. at 11-14.

27. On March 6, 2018, with advance notice, see Scheduling Order, ECF No. 23, Feb. 27, 2018, the court held an evidentiary hearing (the "preliminary injunction hearing") on the CFTC's motion for entry of a preliminary injunction; it received testimony and documentary evidence from the CFTC. McDonnell invoked his Fifth Amendment privilege against compelled self-incrimination.

28. The court explained that it expected fuller proof before it could grant relief other than a preliminary injunction.

29. CabbageTech failed to appear, answer, or otherwise move. The court granted a default as to CabbageTech. See Minute Entry for Proceedings, ECF No. 40, March 6, 2018; see also Clerk's Certificate of Default as to Defendant CabbageTech, Corp., d/b/a Coin Drop Markets, ECF No. 164, Aug. 01, 2018.

30. Following the preliminary injunction hearing, the court issued a Memorandum and Order granting the Commission's motion for a preliminary injunction and holding that under the CFTC's broad anti-fraud authority the Commission may exercise its enforcement power over fraud related to virtual currencies transacted in interstate commerce. See generally Memorandum and Order of Preliminary Injunction and Other Relief, ECF No. 29, March 6, 2018.

31. The CFTC was not seeking authority to regulate trading in virtual currencies. It was seeking only to stop and to prevent ongoing fraud. See CFTC Does Not Regulate Retail Crypto Markets: Chairman Chris Giancarlo , CCN (July 26, 2018), https://www.ccn.com/cftc-does-not-regulate-retail-crypto-markets-chairman-chris-giancarlo/ (ECF No. 156, July 27, 2018) ("The United States Commodity Futures Trading Commission (CFTC) Commissioner J. Christopher Giancarlo has stated that the agency's [intent] is not to exercise regulatory jurisdiction over cryptocurrency trading markets and other cash markets, but to deal with fraud ....").

32. From July 9, 2018, to July 12, 2018, a bench trial was held by the court. Testimony was heard from six witnesses and extensive written evidence was received in the form of more than 150 exhibits in support of the CFTC's allegations. The court determined that four alleged victims who testified were credible. Trial Tr. 432:08-18, 433:12-14, 433:24-25. And that technical witnesses were credible. See Trial Tr. 115-140, 275-289, 302-401.

33. McDonnell introduced no evidence. His argument stressed his view that CFTC lacked jurisdiction and standing. See, e.g. , Trial Tr. 30-39.

34. McDonnell rejected the court's repeated admonitions for him to retain counsel.

COURT: Now, Mr. McDonnell -- I had previously advised you that you need an attorney in this case.

DEFENDANT: Yes, Your Honor.

COURT: Do you want more time to get an attorney?

McDONNELL: No, I came to some understanding at this point that I can't afford an attorney as I mentioned to you previously, but I made an oral argument for a motion to dismiss.

COURT: Well, your papers are very good, but you really do need an attorney. I don't feel that I have the facilities available to help you. Do you have a law degree?

DEFENDANT: No. I'm an indigent lawyer at this point.

COURT: Did you get advice on the briefs that you prepared? They read well.

DEFENDANT: I have contacted dozen of attorneys and telephone calls, things of that nature, if they were willing to, you know, point me to references, maybe help me construct a particular motion. The real point is that I guess I would need, but I'm doing all of this myself right now and everything that you read presented by me is done by my hand.... Through my experience with the legal department here and contacting many attorneys, the amount of due diligence that is needed to be done to actually present this case would have to be somebody that has a vested interest. I don't think that anybody that would be doing something on a pro bono basis would take the necessary time on this case. I work 24 hours a day on this case, Your Honor.

Trial Tr. 2:22-4:15 (emphasis added).

35. On the first day of trial, McDonnell argued in support of his motion for reconsideration of his motion to dismiss, presented an opening statement, cross-examined three witnesses, and requested additional time to argue his motion to dismiss the following day. Minute Entry for Proceedings, ECF No. 130, July 9, 2018; see generally Trial Tr. 03:01-14:25 (motion), 30:01-39:21 (opening), 74:01-76:20 (cross), 79:09-89:25 (re-cross), 109:20-112:08 (cross), 136:24-141:05 (cross), 143:03-17 (granted request for more time). Additional time was granted to him for the second day of trial. Trial Tr. 143:3-13 ("I will give you some time tomorrow at 10:30.... I will give you what time you want. I am not interested in trying to run you over. I am interested in trying to get the facts.").

36. After this first day, however, McDonnell elected not to attend further evidentiary or other proceedings. See Trial Tr. 146:20-22, 296:20-22, 426:20-22. He declined to appear to testify.

37. In advance of the bench trial, McDonnell testified under oath without counsel at a deposition on June 5, 2018, Trial Exs. 84 ("June 5 dep."), 84A (video), and again on June 19, 2018, Trial Exs. 85 ("June 19 dep."), 85A (video). He provided responses to the preliminary injunction order in the form of an e-mail dated March 16, 2018, Trial Ex. 62; after a discovery conference before the magistrate judge, he made responses to the CFTC's interrogatories and document requests, e.g. , Trial Ex. 73 (conference transcript excerpt). He made his interrogatory responses under penalty of perjury. Trial Ex. 63. With respect to all three of his interrogatory responses, document requests responses, Trial Ex. 64, and March 16 e-mail, Trial Ex. 62, McDonnell confirmed, under oath, that each was true, complete, and accurate, and that there was nothing to add to them. Trial Ex. 84 (June 5 dep.) at 84:11-86:04.

38. On court order, McDonnell received same-day full transcripts at plaintiff's expense. Scheduling Order, ECF No. 127, July 12, 2018. He corresponded with Plaintiff's counsel and made several written submissions to the court. See court Ex. 1 of July 10, 2018; court Ex. 1 of July 11, 2018; court Exs. 2-6 of July 12, 2018.

39. McDonnell was informed repeatedly by the court that he could return to the proceedings at any time; on July 11, he was told he could attend summations on July 12 and make any motion he wished, or oppose any motion made by the CFTC, such as the CFTC's motion to withdraw its jury demand that it had made in the complaint. See Trial Tr. 412:7-16.

40. On July 12, the fourth and final day of trial, McDonnell elected not to attend summations or oppose any motions made by the CFTC. See Trial Tr. 427:03-07. The court granted the Commission's unopposed motion to withdraw its demand for trial by jury without ruling on whether this case was, in whole or in part, an action warranting a jury. See Trial Tr. 427:09-11; U.S. Const. amend. VII. Summation proceeded and trial concluded.

41. On July 16, 2018, four days after the conclusion of the trial, McDonnell filed a motion for a jury trial. ECF No. 137; see also ECF No. 138. Defendant's motion was made subsequent to his participation in the first day of trial, where he was made aware at the beginning of the trial that the court intended to hold a bench trial on all of CFTC's claims. Trial Tr. 40:06-21 ("We will proceed with the trial. I want you present in the courtroom.... Well, we are taking the full record. You will have an opportunity to cross-examine their witnesses. You will have an opportunity to put on your own witnesses. And we will proceed with the trial."); Email from Patrick K. McDonnell, ECF 119-1, July 9, 2018 ("Defendant is gracefully withdrawing his defense.... Defendant will not be appearing this point forward.... Defendant understands the process will continue with remedy. ") (emphasis added); see also , supra , at ¶ 38 (discussing McDonnell's continued engagement in the trial proceedings despite his failure to attend in person). The court repeatedly indicated during the bench trial that it intended to make findings of fact and law in a full decision on all applications by the Commission. See Trial Tr. 150:9-151:22 ("I don't want you to put your evidence in a summary fashion. If you are moving for a default, it is not granted. You will proceed with your case as if the defendant were here. He can show up.... I am ordering you to continue presenting your case, and I will use normal burdens of proof in connection with assessing that case."), 346:19-24 ("Well, we have to do a record now. [We do not know] whether there will be an appeal or not ... [of] an injunction, if I grant it, ... and a money judgment, if I grant it."), 434:21-435:22 ("I will have to see your briefs, finding of fact and law and hear your argument.... You are going to have to convince me on the demand for money damages. I think you have made out a very strong case for equity.... Now, [as to] your motion for summary judgment, I am going to deny that as moot.... So I might be in a position of denying summary judgment but granting what you have sought at the trial ....").

42. The court finds that there is no right to a jury trial under the special circumstances of the instant administrative enforcement proceeding. See, e.g., Royal Am. Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1018-19 (2d Cir. 1989) ("[I]t would be patently unfair and, in effect, [an] ambush [of the] trial judge on appeal if appellant were allowed to lodge an early demand for a jury, participate in a bench trial without objection, and then assign as error the failure to honor the jury demand.") (internal quotations omitted); Gusler v. City of Long Beach , 715 F. App'x 68, 69-70 (2d Cir. Mar. 16, 2018) (summary order) (affirming judgment of district court where plaintiff waived previously demanded right to trial by jury by failing to object to, and participating in, evidentiary hearing); Kahn v. Gen. Motors Corp. , 865 F.Supp. 210, 213 (S.D.N.Y. 1994) ("[P]ro se litigants are not treated differently with regard to waiver of jury right.").

43. This court recognizes that there is arguably a right to a jury trial in administrative proceedings for civil and criminal penalties. See U.S. Const., art. III, § 2, cl. 3 (trial of crimes by jury); U.S. Const. amend. VI (trial of crimes by jury); U.S. Const. amend. VII (trial of civil suits at common law by jury); cf. Tull v. United States, 481 U.S. 412, 412, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987) ("The Seventh Amendment guarantees a jury trial to determine liability in actions by the Government seeking civil penalties and injunctive relief under the [Clean Water Act]."); Russell L Hewit, Administrative Civil Money Penalties and the Right to Jury Trial , 33 Wash. & Lee L. Rev. 719 (1976); John F. Duffy, Jury Review of Administrative Action , 22 Wm. & Mary Bill Rts. J. 281 (2013). Defendant participated in the bench trial after it was clear to him and all others participating in the litigation that the right to all remedies sought by the Commission were being tried. As a practical matter, McDonnell waived any of his jury trial rights. Such a waiver of jury was made in a formal manner by the plaintiff at the end of the bench trial. See , supra , at ¶ 40. The defendant, by deliberately absenting himself, denied himself the right to protest the Commission's waiver. Pro se inadequacy to deal with procedural subtleties of a trial, including waiver of a jury, does not warrant, in this case, denial of waiver. Cf. Richard H Fallon, Jr, et al., Hart & Wechsler's The Federal Courts and the Federal System 388-389 (7th ed.

2015) ("Few observers would view the Supreme Court's shifting decisions in this area as having provided a coherent approach to the general question of non-Article III adjudication."). Defendant has not properly sought legal assistance for himself, see, supra , at ¶¶ 10-11, nor has he demonstrated non-possession of sufficient assets to retain an attorney (even if the assets were wrongfully acquired), see , supra , at ¶ 12. At this stage of the proceeding, after a full bench trial with full awards sought by the Commission, the litigation is not subject to an attack of lack of jurisdiction of the court and Commission or of a denial of a jury trial. The special factual circumstances of this case require this ruling.

44. The nature of these proceedings-in which the defendant has substantial interests at stake in terms of his livelihood, as well as injunction, restitution, and monetary penalties-raises the issue of whether the instant administrative enforcement action brought by the Commission circumvents the Constitution, and forces McDonnell to try what, in effect, is a criminal case without counsel and without the protections afforded to him by the Fifth Amendment, Sixth Amendment, and other constitutional and statutory provisions. The basic structure of administrative agencies, such as the Commission, is premised upon the conception that it is the agency, rather than a jury, which will find guilt. See Comment, The Imposition of Administrative Penalties and the Right to Trial by Jury -An Unheralded Expansion of Criminal Law ? 65 J. Crim. L. & C. 345 (1974) ("Today agencies commonly utilize the imposition of some type of monetary sanction for an alleged violation of an agency rule. In the majority of instances, an individual accused of a violation receives no jury trial to determine guilt or innocence. The agency itself performs this function. ) (emphasis added). Administrative agencies can be thought of as the fourth branch of government; they, like the executive, legislative, and judicial branches, are bound by the Constitution. They cannot avoid a constitutional right of trial by jury in what is, in essence, a criminal case; nor can administrative agencies avoid their burden of proof beyond a reasonable doubt in such cases. But, in view of the defaults of McDonnell, waiver by the Commission, and the special circumstances of this case, the court believes there is no point in addressing this fundamental administrative law issue further. It should be noted, however, that all relevant material facts were proven beyond a reasonable doubt in this case. See, e.g., supra , at ¶¶ 14, 19; infra , at ¶¶ 47, 179, 229.

45. The CFTC filed a motion for summary judgment on July 27, 2018. See ECF Nos. 161, 162. The motion for summary for judgment is dismissed as moot; plaintiff's claims were fully heard at the bench trial.

46. McDonnell filed a motion to dismiss for insufficient evidence on July 16, 2018. ECF No. 139. Defendant's motion is denied for the reasons stated above and below.

47. The CFTC now seeks entry of a final judgment against Defendants, including entry of a permanent injunction, an award of restitution, and imposition of civil monetary penalties. Its evidence establishes by proof beyond a reasonable doubt that Commission is entitled to such a judgment in its favor. It more than met the preponderance of the evidence standard. See CFTC v. Hunter Wise Commodities, LLC , 21 F.Supp.3d 1317, 1353 (S.D. Fla. 2014) (applying preponderance of the evidence standard); see also Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation , 76 Fed. Reg. 41398, 41405 (July 14, 2011) (in promulgating Rule 180.1, determining that it will be the plaintiff who "bears the burden of proving the violation by a preponderance of the evidence").

B. McDonnell's Scheme to Defraud with Virtual Currencies

i. Parties

48. CFTC is an independent federal regulatory agency that is charged by Congress with the administration and enforcement of the CEA and the Regulations.

49. McDonnell is a resident of Staten Island, New York. Trial Ex. 84 (June 5 dep.) at 21:13-21. His address is 20 Rawson Place, Staten Island, New York, 10314. Id.

50. McDonnell owned and controlled CabbageTech. Trial Exs. 85 (June 19 dep.) at 10:12-14, 57, 58 at 2 (entity records). McDonnell has never been registered with the Commission.

51. Defendant CabbageTech is a New York corporation based in Staten Island, New York, and was incorporated on May 6, 2016. Trial Ex. 58 (entity records). Default was granted against CabbageTech on March 6, 2018. ECF No. 40. CabbageTech's service address is 20 Rawson Place, Staten Island, New York, 10314. Trial Exs. 57, 58, 84 (June 5 dep.) at 225:19-226:02. This is the same address as McDonnell's. See, supra , at ¶ 49.

ii. CabbageTech, Corp. d/b/a Coin Drop Markets

52. McDonnell created, owned, and exclusively controlled CabbageTech. See Trial Exs. 58 at 2 (incorporation filed by Patrick K. McDonnell), 84 (June 5 dep.) at 122:08-20, 85 (June 19 dep.) at 10:12-14. At times, CabbageTech did business under the name "Coin Drop Markets." Trial Ex. 84 (June 5 dep.) at 39:23-40:06.

53. Neither CabbageTech, Corp. nor Coin Drop Markets has ever been registered with the Commission.

54. McDonnell was the sole operator and owner of the CabbageTech business. Trial Ex. 63 at no. 3. At times, McDonnell identified himself as CabbageTech's CTO (Chief Technology Officer), among other titles. E.g. , Trial Exs. 1 at 1, 42; Trial Tr. 73:05-12, 205:12-18. There was no one else involved in the company besides McDonnell. Trial Ex. 84 (June 5 dep.) at 125:07-13, 142:08-13.

55. McDonnell operated CabbageTech from his home at 20 Rawson Place, Staten Island, New York, 10314. E.g. , Trial Ex. 84 (June 5 dep.) at 21:13-21, 144:10-16, 145:08-12, 157:18-158:14 (McDonnell's home basement was "headquarters of [his] business"); see also Trial Exs. 57, 58, 102 (subscriber information); Trial Tr. 370:15-19; Trial Ex. 124 (activity log reflecting logins from IP addresses 24.168.89.122 and 72.227.210.194); Trial Exs. 90-91, 95-96 (account records); Trial Tr. 130:02-132:16, 136:02-136:20 (IP addresses associated with logins); Trial Exs. 56, 104-113 (Federal Express records relating to 20 Rawson Place).

56. McDonnell deliberately suggested to some clients that he had a business office on Wall Street. See Trial Tr. 155:14-20. He had no such address.

iii. Array of Accounts to Execute Fraud

57. McDonnell used multiple telephone numbers to further his frauds.

58. McDonnell used several different telephone numbers in connection with CabbageTech, including (718) 524-4718, the cellular telephone number (929) 428-6422, (718) 524-6312, and the toll-free number (888) 614-6445. E.g. , Trial Tr. 97:12-25, 99:02-20, 202:19-203:11, 205:03-205:18, 284:11-286:09, 287:03-15; see also Trial Exs. 1 at 1, 56 (label with home number), 84 (June 5 dep.) at 34:05-35:02, 102 (subscriber information), 122 (toll-free account records), 128 (Simple Bank account information), 129 (recorded telephone call), 129A (transcript).

59. McDonnell solicited potential and existing customers by telephone. E.g. , Trial Tr. 96:25-97:11, 99:02-20, 202:19-203:11. McDonnell also supplied his numbers to potential and actual customers in various ways, such as through the telephone, social media sites, by e-mail, and by facsimile. E.g. , Trial Tr. 99:02-99:20, 203:12-204:13; see also Trial Ex. 1 at 1.

60. McDonnell used multiple e-mail accounts to further his frauds.

61. McDonnell used a wide array of email addresses in connection with CabbageTech, such as coindropmarkets@gmail.com, cdm@gmx.us, cdmmerchant@gmx.com, cryptoclown@gmx.com, patrickpkmcdonnell@gmail.com, patmcdonnell@gmx.com, info@coyotewallstreet.com, jflack101@gmail.com, and loramcdonnell@gmx.com, among several others. E.g. , Trial Exs. 1, 14, 72, 84 (June 5 dep.) at 38:08-16, 43:22-44:15, 88-91, 93-96 (Bittrex records), 102 (subscriber information), 119 (subscriber information reflecting a McDonnell telephone number); see also 104-113, 115 (FedEx records), 128-129A (Simple Bank records), 133 (Slack account).

62. McDonnell testified under oath that no one else besides himself had access to his email accounts. See Trial Ex. 84 (June 5 dep.) at 67:19-67:21.

63. McDonnell used numerous social media accounts, such as Facebook, Twitter, and Slack, to further his frauds.

64. McDonnell maintained a social media presence on various platforms, including Twitter, Facebook, and Slack. Among other things, his social media accounts lured potential customers to Defendants' Coin Drop Markets website and to McDonnell. Trial Tr. 45:03-17, 154:08-155:03, 158:09-14.

65. McDonnell's social media accounts at times featured a representation of his face, such as a photograph or a sketch-like portrayal. See Trial Tr. 163:09-16, 187:01-23, 249:17-24; Trial Exs. 36, 36A (article with picture), 39 (Facebook), 84B (still image from video recording of June 5 deposition).

66. McDonnell used several Twitter accounts under names such as @BTCXBTDEV, @MrPatMcDonnell, @BTCXBTTRADING, @CoinDropMarkets, and @TIGRtokens. See, e.g. , Trial Tr. 67:10-68:09, 69:09-70:14, 163:11-14, 187:04-23; see also Trial Exs. 6, 8, 12, 14, 23, 27, 66, 141-142 (subscriber information).

67. McDonnell's @coindropmarkets Twitter account purported to have thousands of "followers." Trial Ex. 66 (Defendant's Website and Twitter Descriptions, June 4, 2018, ECF No. 113-1, with screenshot of @coindropmarkets excerpt); see also Trial Tr. 158:09-14.

68. One of McDonnell's Facebook pages relating to CabbageTech and Coin Drop Markets used the name "Bitcoinxbtradegrp"; in addition to the Coin Drop Markets toll free number and website, listed was a purported business address at 110 Wall Street. Trial Exs. 39, 40; Trial Tr. 155:14-20.

69. McDonnell created and controlled a "Slack team" named Bitcoin XBT Trade Group (the "CabbageTech Slack account") in May 2017 in connection with purportedly providing CabbageTech membership services. E.g. , Trial Exs. 133, 157, 158; see also Trial Tr. 249:15-250:25, 392:01-394:15.

70. McDonnell used the Coin Drop Markets websites to carry out his frauds.

71. McDonnell published and maintained a number of websites related Coin Drop Markets. One was www.coindropmarkets.com. Trial Exs. 66 (excerpt of screen shot), 69 at 37:23-38:19, 81. Another website was www.coindrops.club. See, e.g. , Trial Exs. 40 (Facebook page). McDonnell also registered the website tigrtokens.org as part of his scheme for soliciting customers for money or assets in connection with the purported purchases of the virtual currency Tigr. Trial Ex. 78; see also Trial Tr. 66:06-14, 169:08-21.

72. Some customers who invested with CabbageTech could log into Coin Drop Market's website and receive account and balance statements. E.g. , Trial Tr. 222:15-224:22; Trial Exs. 49-50.

73. McDonnell used the Coin Drop Markets PayPal account to carry out his frauds.

74. McDonnell maintained the PayPal account associated with the e-mail address cdm@gmx.us (the "Coin Drop Markets PayPal account"). E.g. , Trial Exs. 62 (McDonnell March 16 e-mail), 125 (Coin Drop Markets PayPal account transaction log); Trial Tr. 369:21-371:05, 373:13-15 (describing Coin Drop Markets PayPal account transaction log).

75. Customers directed payments to the Coin Drop Markets PayPal account through links in the CabbageTech website. E.g. , Trial Tr. 159:23-160:04; see also Trial Ex. 125 (Coin Drop Markets PayPal account transaction log, payments received worksheet).

76. McDonnell used bank accounts to carry out his frauds.

77. McDonnell maintained an account in his name and home address at Simple Bank and Bancorp Bank, Trial Exs. 100, 128 (account information), 171; Trial Tr. 282:10-283:06, 315:21-318:17, and in the name of CabbageTech and his home address at TD Bank, Trial Tr. 277:20-278:24; Trial Exs. 137, 138, 139.

78. Customer funds were deposited into, and withdrawn from, bank accounts. Trial Tr. 277:20-281:17, 320:07-15, 323:12-325:03, 376:16-378:16; see Trial Exs. 100, 137-139, 171, 172.

79. McDonnell used multiple virtual currency accounts to carry out his frauds.

80. McDonnell maintained an account at Bittrex, a virtual currency exchange, associated with the e-mail address cdmmerchant@gmx.com (the "Bittrex cdmmerchant account"). See Trial Tr. 120:10-25; Trial Exs. 62 at 2-3, 85 (June 19 dep.) at 14:22-19:09.

81. The Bittrex cdmmerchant account was created on April 27, 2017. Trial Exs. 90 at 1, 91 at 1.

82. On June 24, 2017, another account was created at Bittrex in the name of McDonnell's wife, Lora McDonnell, and associated with the e-mail address cryptoclown@gmx.com (the "Bittrex cryptoclown account"). Trial Tr. 133:03-135:12; Trial Exs. 93-96.

83. McDonnell controlled both the Bittrex cdmmerchant account and the Bittrex cryptoclown account. E.g. , Trial Tr. 133:15-136:18, 356:12-367:12; see also Trial Exs. 89, 90, 91, 94, 95, 96 (accounts associated with same IP addresses, telephone number).

84. McDonnell used numerous FedEx accounts to carry out his frauds.

85. McDonnell created and maintained several FedEx accounts under a variety of names and e-mail addresses. E.g. , Trial Exs. 56, 80, 104-113, 115. McDonnell used the accounts to solicit and obtain funds from customers. E.g. , Trial Exs. 53, 56, 104-109, 111, 115; see also Trial Tr. 96:17-98:05, 211:14-23, 216:04-217:14.

iv. Fraud Involving Virtual Currency Trading Advice

86. McDonnell used fraudulent solicitations reflecting false and misleading claims about his track record helping his clients make profits.

87. Customers were attracted by McDonnell's social media and internet presence, which included misleading statements and omissions about his credentials. E.g. , Trial Tr. 158:09-17, 159:11-19.

88. As part of his solicitations to potential customers to become members of groups supposedly receiving his and Coin Drop Markets' expert trading guidance, McDonnell made false and misleading claims about his track record and prowess as a professional trader through Twitter and through his website. E.g. , Trial Ex. 161 ("Made over 73 BTC today bud great day man"); Trial Tr. 48:19-49:03, 61:03-17, 255:09-19.

89. McDonnell made false and misleading claims to prospective and actual customers about being a Wall Street trader. For example, McDonnell misrepresented his company's credentials by advertising a fake Wall Street address on social media, and by telling customers he was heading into the office to trade. E.g. , Trial Exs. 39, 40; Trial Tr. 155:17-20, 260:04-11, 261:18-22; see also Ex. 51 at June 16, 2017 8:47 AM e-mail mentioning both a "Staten Island office" and an office in "NYC").

90. McDonnell made false and misleading claims about his experience and expertise with virtual currency, including the development and promotion of new virtual currencies. E.g. , Trial Tr. 160:05-161:02. By contrast, under oath, McDonnell stated he did not recall being involved in the development of any virtual currencies. Trial Ex. 84 (June 5 dep.) at 86:05-88:10.

91. McDonnell misled customers by building a false relationship of trust over time with them in order to be able to defraud them. E.g. , Trial Tr. 83:14-22, 158:02-08. He did so using e-mail, social media, and internet-based chats to develop relationships and rapport with victims. E.g. , Trial Tr. 158:02-08; Trial Exs. 6, 8, 14. He did so through numerous telephone calls. E.g. , Trial Tr. 99:02-04, 203:01-11.

92. McDonnell used fraudulent statements as to who were the officers and employees of CabbageTech.

93. CabbageTech promotional materials made claims that membership and trading groups were operated by teams of experts, such as "a dedicated team of digital asset trading specialists trend spotting." E.g. , Trial Ex. 70 at "Exhibit 19" and "Exhibit 20." These and other CabbageTech materials falsely suggested that the company consisted of a specialized expert "team." See Trial Tr. 239:08-14; Trial Ex. 63 at Response No. 3; cf. Trial Ex. 84 (June 5 dep.) at 125:22-126:03 (admitting there was no one else involved in the company).

94. McDonnell falsely assumed the fake identity Jason Flack (purporting to be a CabbageTech representative whose boss was McDonnell) to solicit customers by telephone, including by cold-calls, as well as by e-mails. Trial Tr. 94:19-95:04, 96:25-97:11, 202:19-203:11, 205:03-18 (McDonnell was falsely held out by McDonnell as Flack's "boss"); Trial Exs. 42-45, 47, 51, 77, 79.

95. At trial, McDonnell's voice was recognized as that of "Jason Flack," a nonexistent person who was held out by Defendants as acting for them. Trial Tr. 240:25-242:09 (customer recognizing defendant's voice as Jason Flack's), 305:17-309:08 (identifying records of calls to customers from defendant's telephone number); see also Trial Tr. 176:16-19, 180:06- 23; 187:18-188:05 (customer recognizing defendant's voice as Patrick K. McDonnell's); Trial Ex. 168. The court found the voice recognition and attribution credible.

96. McDonnell falsely assumed the names Michelle Robertson and Michelle Robinson in connection with Coin Drop Markets. E.g. , Trial Ex. 79.

97. McDonnell use of FedEx labels reflecting multiple company names greatly exaggerated the size and complexity of Defendants' business to mislead customers. E.g. , Trial Exs. 53, 56.

98. McDonnell made fraudulent solicitations of the services he offered.

99. McDonnell and CabbageTech purported to offer a wide array of memberships and services. E.g. , Trial Exs. 38 (Coin Drop Markets membership services), 44 (membership confirmation e-mail), 66 (ECF No. 113-1, a screenshot produced by McDonnell reflecting six memberships), 84 (June 5 dep.) at 132:15-19 (referring to ECF No. 113-1).

100. In early 2017, McDonnell and his company advertised memberships in a variety of membership levels ranging from "Bronze" to "Diamond," with the level of services supposedly increasing with the price of the membership. E.g. , Trial Exs. 44 ("Diamond" membership confirmation), 66 (screenshot excerpt), 84 (June 5 dep.) at 132:15-19; see also Trial Tr. 159:08-10, 161:03-22, 205:03-206:20. Such enriched services were not intended to be given as promised.

101. In or around April 2017, Defendants advertised "membership" in trading groups such as RedliteGreenLite, BTC ("RLGLBTC"), relating to Bitcoin, and RedliteGreenLite, LTC ("RLGLLTC"), relating to the virtual currency Litecoin. E.g. , Trial Exs. 1 (e-mail confirming RLGLLTC membership), 70 at "Exhibit 19" and "Exhibit 20" (bitcoin forum advertisements), 162-63 (Twitter messages regarding RLGLLTC); Trial Tr. 173:09-20. These memberships supposedly offered expert entry-and-exit-price guidance for day trading of certain virtual currencies; the guidance was never given as promised. Trial Exs. 1, 70 at "Exhibit 19" and "Exhibit 20" (bitcoin forum advertisements); see also Trial Tr. 45:14-17, 173:09-20, 257:13-18. The memberships were used to mislead customers and defraud them.

102. As McDonnell told the court during the March 6, 2018 hearing, in reference to the webpages promoting RLGLLTC, Trial Ex. 70 at "Exhibit 19" and "Exhibit 20" (bitcoin forum advertisements), they "were posts that list what we do," see Trial Ex. 71, at 41:01-04, 41:16-19. These services were not provided as promised.

103. Defendants solicited memberships or subscriptions to other groups and services, such as a "Turn-Key Annual Membership," providing access, for instance, to McDonnell's and CabbageTech's supposed virtual currency trading expertise, mentorship, and guidance. See Trial Tr. 46:03-14; Trial Exs. 38, 69 at 39:16-24. Those "memberships" were of no help to customers and were used to defraud.

104. McDonnell told the court during the March 6, 2018 hearing, in reference to the screenshot of a CabbageTech webpage advertising CabbageTech memberships such as RLGLLTC and Crypto Annual Turnkey Membership, Trial Ex. 70 at "Exhibit 18"; see also Trial Ex. 38, "that's an actual picture of my website," see Trial Ex. 69, at 38:17-19. The website was used in Defendants' fraudulent scheme.

105. CabbageTech promised expert services for 12 months in exchange for an up-front fee. See Trial Exs. 1 (reflecting extension from 12 to 24 months), 44, 66, 70. Such expert services were not delivered.

106. The nominal price of the trial membership and the relatively inexpensive prices of the next-higher membership levels fraudulently produced income for McDonnell. E.g. , Trial Ex. 125 (Coin Drop Markets PayPal account transaction log, payments received worksheet). The low entry prices deliberately developed targets softened up to be defrauded by McDonnell.

107. Once customers had made an initial purchase, McDonnell solicited "lifetime" memberships in a more exclusive trading sector or "elite" group that supposedly would provide greater opportunities to profit from virtual currency trading. E.g. , Trial Exs. 6 ("You may wanna consider joining RLGLBTC it's direct 1-on-1 trading alongside me and all members involved real-time."; "The program is 1 BTC for it's [sic] lifetime been running since 2010 so there is a lot of BTC buying power"), 163 ("You send me 1 BTC I'll trade w/you personally minute-2- minute all coins"); Trial Tr. 52:20-53:16, 56:13-57:09, 161:07-161:22. These services were not intended to be rendered, leaving customers defrauded.

108. McDonnell and CabbageTech never provided promised expert membership services. E.g. , Trial Tr. 66:06-21 (complaints regarding the lack of trading advice that Mr. McDonnell falsely portrayed that he would be giving), 174:20-24; Trial Ex. 19.

109. McDonnell shut his company down in mid-2017, well before he and CabbageTech had provided a year's worth of services. E.g. , Trial Tr. 174:20-24, 239:20-240:01; Trial Ex. 84 (June 5 dep.) at 160:23- 161:11. McDonnell never provided, and never intended to provide, the promised entry-and-exit-point guidance for a specific transaction related to Titcoin via the Slack group that he had formed. E.g. , Trial Tr. 163:20-165:14.

110. McDonnell directed his customers to buy Titcoin "at any price," and then ceased communicating with customers as part of his scheme to defraud. Id. As a result, investors who followed this direction suffered substantial losses. Trial Tr. 165:10-14, see also Trial Tr. 174:20-174:24; Trial Ex. 133 (Slack group information).

111. McDonnell misappropriated customers' funds.

112. Many customers made payments in United States dollars and in virtual currency to McDonnell and CabbageTech in exchange for promised expert-guidance subscription services. E.g. , Trial Tr. 45:22-46:14, 159:23-160:04, 161:07-13, 206:05-207:17, 337:01-342:14, 348:09-356:11; Trial Exs. 90-91 (Bittrex account records). The expected guidance was never intended to be supplied, and was never supplied as promised.

113. The customers knew McDonnell's bitcoin, litecoin, and other virtual currency addresses because McDonnell specified various of these addresses to them. E.g. , Trial Tr. 54:01-08, 54:14-56:22; Trial Exs. 8 at 2, 163. The addresses were furnished as part of a fraud to obtain assets from customers by McDonnell.

114. McDonnell never provided promised expert services, and he ceased providing any services at all after receiving customer funds. Trial Tr. 66:06-68:12, 68:16-23, 174:20-175:19, 229:05-15, 230:21-232:08, 253:23-254:04.

115. No customer found entitled to restitution ever received a refund from CabbageTech or McDonnell when they properly requested such refunds. E.g. , Trial Tr. 71:03-15, 107:07-107:24, 108:09-109:12, 232:07-21; Trial Exs. 76, 77, 79, 82, 83. McDonnell has not disputed this; when asked, McDonnell claimed under oath that he did not even recall a customer's request for a refund. Trial Ex. 84 (June 5 dep.) at 254:17-20.

116. The large numbers of memberships claimed were a figment of imagination of McDonnell with no basis in fact.

117. McDonnell never intended to provide a year's worth or a lifetime's worth of promised expert services. He was not capable of doing so. Instead, the only reasonable inference is that the fraudulent membership offers were designed not only to generate Defendants' income, but to get victims in the door and to position them for further fraudulent solicitations for greater and greater amounts. E.g. , Trial Tr. 52:17-53:02, 53:13-54:08, 58:11-59:15, 161:03-22, 205:19-206:20, 208:18-209:11.

v. Fraud Involving Purchase and Trading of Virtual Currency

118. McDonnell made fraudulent solicitations for virtual currency transactions based on non-existing facts and false promises.

119. McDonnell used the lure of less-expensive memberships to get potential victims in the door and to position them for further fraudulent solicitations for virtual currency purchases or trading on their behalf under McDonnell's direction. E.g. , Trial Tr. 57:22-58:06 (after sending litecoin to join an Elite group, the customer was solicited to send remaining litecoin for Patrick McDonnell to trade as part of Defendants' fraudulent scheme).

120. To solicit customers to provide funds for him to trade on their behalf, McDonnell falsely claimed Wall Street trading expertise, virtual currency expertise, an ongoing record of exceptional trading performance, and a large clientele. E.g. , Trial Tr. 61:11-17, 97:02-11, 159:11-16, 160:05-161:02, 197:07-08, 265:24-266:16; Trial Exs. 14 ("Hey Rich I'm going over trading blotter your [sic] up big on amount of $LTC traded will discuss tom. Hey listen IDK how big an investor you are but there is real $ to be made just w/ $LTC"; "Outside of twitter I have a very big retail business with over 8,000+ active investors who trade my stock rec's this honestly is just building the crypto side. I trade over $50M in BTC for this group gathered since 2010"), 161 ("made over 73 BTC today bud great day man"), 166 (I wish I was trading your $LTC bro I'm caking made $122k total yesterday").

121. To solicit customers to provide funds for him to trade on their behalf, McDonnell falsely promised customers rapidly profitable in-and-out virtual currency investments. E.g. , Trial Tr. 58:18-24, 168:05-25, 169:03-07, 169:15-19, 255:09-19; Trial Exs. 6 at 1 (promising 300% returns in less than three days) ("1 BTC in should produce 3 BTC out"), 8 at 2 (promising 200 to 300% profit on 76 litecoin each day of trading), 167 (promising to make 0.5 to 2 bitcoin daily for a customer).

122. McDonnell fraudulently solicited customers to provide funds in exchange for virtual currency from CabbageTech at supposedly below-market rates. E.g. , Trial Ex. 43 ("Our cryptocurrency division headed by Pat McDonnell/CTO has discounted Bitcoin below current market price for exchange. There is currently 9,400 $BTC available ... to provide low entry to those looking to profit. We are also accepting $ETH, $LTC in exchange for $BTC outside of USD"); Trial Tr. 208:16-210:02. McDonnell falsely claimed CabbageTech would provide escrow services for virtual currency that customers purchased through CabbageTech. Trial Tr. 213:09-21, 218:16-20; Trial Ex. 50 ("CDM acts as escrow").

123. McDonnell falsely told customers that CabbageTech would manage their invested funds. E.g. , Trial Tr. 218:19-218:20 ("For the stuff in escrow, he's managing it for me").

124. McDonnell wrongfully kept customers' funds.

125. McDonnell fraudulently dissipated customer funds deposited into the CabbageTech TD Bank account. E.g. , Trial Exs. (TD Bank deposits), 138 (check records for TD Bank), 139 (TD Bank account statements).

He did not invest these funds as he had promised to do, but took possession of them as part of his fraudulent scheme.

126. McDonnell repeatedly withdrew customer funds deposited into the CabbageTech TD Bank Account from ATMs for his own use soon after receipt. E.g. , Trial Ex. 139, at 1; see also Trial Tr. 279:21-280:04 (detailing withdrawals shortly after deposit of customer check), 394:18-22, 395:05-11. McDonnell used customer funds deposited into the TD Bank account to pay his own rent. Trial Tr. 280:01-04, 455:01-09; Trial Ex. 138.

127. McDonnell misappropriated customer funds sent to the Bittrex cdmmerchant account. On June 17, 18, and 19, 2017, at the same time that customer demands for refunds were mounting, e.g. , Trial Exs. 51, 77, 79, 82, 83, McDonnell as part of his scheme to defraud transferred more than 660 litecoin worth thousands of dollars in cash from his Bittrex cdmmerchant account to the Bittrex cryptoclown account opened in the name of his wife for hiding abroad. Trial Exs. 150-52 (demonstratives), 144-49; see also Trial Exs. 90-91, 95-96; Trial Tr. 133:17-136:18, 356:12-18, 357:16-20, 365:04-07, 367:06-12, 451:2-6; Aug. 23, 2018 Tr. 4:22-5:8, 8:1-12, 14:2-12 (discussing assets moved into wife's account that were transferred out of the country). He did this to defraud his customers.

128. When customers asked to withdraw their investment and purported gains, McDonnell would offer a series of false excuses for delays in repayment before ultimately cutting-off communications entirely. E.g. , Trial Tr. 70:20-25, 106:02-07, 229:05-230:13; Trial Exs. 27, 51, 76, 77, 79, 82, 83.

129. McDonnell falsely told victims that their profitable investments had been reinvested, e.g. , Trial Tr. 220:06-17; Trial Ex. 82 at 3-5, or that his secretary had forgotten to send a check to the customer requesting his money, e.g. , Trial Tr. 229:05-230:13, or that there had been a hacking of his accounts so that the money could not be located, e.g. , Trial Ex. 52; Trial Tr. 173:21-174:20, 238:12-240:01.

130. No customer ever received a refund. E.g. , Trial Tr. 71:03-15, 107:07-107:24, 108:09-109:12, 232:07-21; e.g. , Trial Exs. 76, 77, 79, 82, 83. McDonnell has not disputed this, claiming under oath that he did not recall even a single customer who requested a refund. Trial Ex. 84 (June 5 dep.) at 254:17 to 254:20.

131. Many customers should have received customer assets being controlled by McDonnell when they requested them. The refunds were fraudulently withheld.

132. McDonnell provided false account statements to his customers.

133. McDonnell provided false account statements to customers through the Coin Drop Markets website. E.g. , Trial Tr. 221:22-222:23, 223:04-24, 226:10-17; Trial Exs. 49, 50.

134. McDonnell provided false account statements and performance updates to customers who had sent funds to CabbageTech for investment in virtual currency in written communications as well as by telephone. E.g. , Trial Exs. 14, 47, 49; Trial Tr. 59:16-19, 104:03-104:09, 211:11-212:08.

135. The false statements and reports sent to customers conveyed the false impression that CabbageTech was achieving profits for the customer.

136. On or around June 17, 2018, customer David Martin received a purported account balance update from Patrick McDonnell via e-mail falsely