CFTC Charges California Resident and His Corporation with Fraud and Misappropriation in a Popular Romance Scam Involving Digital Asset Commodities and Forex | #DatingScams | #LoveScams | #RomanceScans

The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Central District of California against California resident Cunwen Zhu and his California-based company Justby International Auctions (Justby). The complaint alleges that Zhu and Justby fraudulently misappropriated over $1.3 million in customer funds intended for digital asset commodity and forex trading. This is CFTC’s first case involving a romance scam, commonly known as “Pig Butchering,” a type of fraud that is growing in popularity.    

The CFTC’s complaint alleges Zhu and Justby, with other individuals and entities, operated a type of “romance fraud” which is also referred to as a “Sha Zhu Pan” or “Pig Butchering” scheme. In this scheme, the fraudsters cultivate a friendly or romantic relationship with a potential customer, “fatten” them up with falsehoods, before soliciting the customer to participate in a fraudulent financial opportunity. The complaint alleges from approximately April 2021 through March 2022, Zhu and Justby accepted and misappropriated over $1.3 million from at least 29 customers as part of this scheme.

In its continuing litigation against Zhu and Justby, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, civil monetary penalties, trading bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

“As people sought to escape the isolation of the pandemic and form a connection to others online, fraudsters saw a new venue to prey on and to take advantage of the public,” said Director of Enforcement Ian McGinley. “Today’s action, which is the first of its type for the CFTC, shows that the CFTC will hold unscrupulous individuals who defrauded customers accountable and protect the public from internet fraud.”

Case Background

As alleged in the complaint, Zhu and Justby took part in an elaborate and well-coordinated scheme to defraud customers through digital asset commodity and forex trading. At least 29 customers transferred more than $1.3 million to Justby for the purpose of trading digital assets and forex on supposedly legitimate trading platforms. Instead of using the funds to trade on behalf of these customers, Zhu and Justby misappropriated the customers’ funds. Zhu used some of the funds for his personal use, and transferred the majority of the funds to bank accounts, digital wallets, and digital asset trading platforms under the control of other members of the fraudulent scheme. In fact, no actual trading took place on behalf of customers and the trading platforms were controlled by other members of the fraudulent scheme. In addition, the fraudulent scheme provided customers with false trade records in order to maintain the pretense that they were engaged in actual trading. 

Parallel Criminal Action

On April 19, 2023, Cunwen Zhu was charged with one count of wire fraud in the Middle District of Florida, United States of America v. Cunwen Zhu, Case No. 3:23-cr-66-BDJMCR, for conduct similar to that alleged in the CFTC’s complaint. 

The Division of Enforcement thanks and acknowledges the assistance of the U.S. Attorney’s office for the Middle District of Florida, U.S. Secret Service and the FBI’s Portland Office.

CFTC Division of Enforcement staff responsible for this case are Dmitriy Vilenskiy, Karen Kenmotsu, Chrystal Gonnella, Kelly Makimoto-Murphy, Traci Rodriguez and Paul G. Hayeck.  Romance Investment Fraud Task Force staff Jenny Chapin and Elsie Robinson also assisted in this case.

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CFTC’s Romance Scam Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories and Articles, including Avoid Forex, Precious Metals, and Digital Asset Romance Scams, which warn users of online dating and social media platforms about a recent increase in scams that lure victims into sending their money to fraudulent websites that claim to trade foreign currency exchange (forex) contracts, precious metals contracts, or digital assets.

The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. A customer should be wary of providing funds to an unregistered entity.  A company’s registration status can be found using NFA BASIC.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online or contact the Whistleblower Office.  Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected, paid from the Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.

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