UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

 

COMMODITY FUTURES TRADING 

COMMISSION, 

Plaintiff,

v. 

MICHAEL ACKERMAN, Q3 HOLDINGS, 

LLC, and Q3 I, LP, 

Defendants.

Civil Case No.: 1:20-cv-1183 

COMPLAINT FOR INJUNCTIVE AND 

OTHER EQUITABLE RELIEF AND 

FOR CIVIL MONETARY PENALTIES 

UNDER THE COMMODITY 

EXCHANGE ACT AND COMMISSION 

REGULATIONS

I. INTRODUCTION

1. From at least August 2017 through December 2019 (the “Relevant Period”), 

Defendant Michael Ackerman (“Ackerman”) and the entities he founded, Defendant Q3 

Holdings, LLC (“Q3H”), and Defendant Q3 I, LP (“Q3I,” and together with Q3H, “Q3”),

operated a fraudulent scheme in which they solicited and misappropriated funds to purportedly 

trade virtual currencies. Based on Ackerman’s and Q3’s (collectively “Defendants”) fraudulent 

misrepresentations, more than 150 individuals and entities (“Q3 customers”) deposited at least 

$33 million with Q3. However, less than $10 million of the $33 million in Q3 customer funds 

was wired to virtual currency exchanges.

2. Instead, Defendants transferred more than $25 million of Q3 customers’ funds to 

personal bank accounts of Ackerman and the two other individuals with whom Ackerman 

founded Q3. Ackerman himself received more than $7 million of Q3 customers’ funds. 

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3. To entice potential Q3 customers to invest in their scheme, Defendants knowingly 

and falsely represented that they were profitably trading virtual currencies earning monthly 

returns of approximately 15%. 

4. Despite Defendants’ representations to potential and existing Q3 customers that 

their virtual currency trading was highly successful and that Q3 customers were free to withdraw 

the profits earned in their accounts after one year, Defendants did not trade virtual currencies 

successfully and most Q3 customers’ money was misappropriated or lost trading. 

5. To conceal their fraud, Defendants and the other Q3 founders provided Q3 

customers with false accounting statements, newsletters containing false trading returns, and 

fictitious screenshots reflecting the amount of money under Q3’s management. 

6. Through this conduct, Defendants were engaged, are engaging, or are about to 

engage in fraudulent acts and practices in violation of the Commodity Exchange Act (“Act”), 7 

U.S.C. §§ 1-26 (2018), and the Commission’s Regulations (“Regulations”), 17 C.F.R. pts. 1-190 

(2019), specifically, Section 6(c)(1) of the Act, 7 U.S.C. § 9(1) (2018), and Regulation 180.1(a), 

17 C.F.R. § 180.1(a)(2019) 

7. Accordingly, pursuant to Section 6c of the Act, 7 U.S.C. § 13a-1 (2018), the 

Commission brings this action to enjoin such acts and practices and compel compliance with the 

Act and the Regulations. In addition, the Commission seeks civil monetary penalties and 

remedial ancillary relief including, but not limited to, trading and registration bans, restitution, 

disgorgement, rescission, pre- and post-judgment interest, and such other relief as the Court may 

deem necessary and appropriate.

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8. Unless restrained and enjoined by this Court, Defendants are likely to continue to 

engage in the acts and practices alleged in this Complaint and similar acts and practices, as more 

fully described below. 

II. JURISDICTION AND VENUE 

9. Jurisdiction. This Court has jurisdiction over this action under 28 U.S.C. § 1331 

(2012) (codifying federal question jurisdiction) and 28 U.S.C. § 1345 (2012) (providing that U.S. 

district courts have original jurisdiction over civil actions commenced by the United States or by 

any agency expressly authorized to sue by Act of Congress). In addition, Section 6c(a) of the 

Act, 7 U.S.C. § 13a-1(a) (2018), provides that district courts have jurisdiction to hear actions 

brought by the Commission for injunctive relief or to enforce compliance with the Act whenever 

it shall appear to the Commission that any person has engaged, is engaging, or is about to engage 

in, an act or practice constituting a violation of any provision of the Act or any rule, regulation, 

or order thereunder. 

10. Venue. Venue properly lies with the Court pursuant to Section 6c(e) of the Act, 7 

U.S.C. § 13a-1(e) (2018), because Defendants are found in, inhabit, or transact business in this

District, and because acts and practices in violation of the Act occurred, are occurring, or are 

about to occur, within this District. As alleged in this complaint, Defendants fraudulently 

transacted business in the District. Specifically, Defendants used a bank in the District to deposit 

and transfer customer funds and a trading exchange in the District to trade virtual currencies. 

III. THE PARTIES

11. Plaintiff Commodity Futures Trading Commission (“Commission” or 

“CFTC”) is an independent federal regulatory agency that is charged by Congress with the 

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administration and enforcement of the Act and the Regulations. The Commission maintains its 

principal office at Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. 

12. Defendant Q3 Holdings, LLC is a limited liability company formed in Delaware 

on April 10, 2018. Q3H’s last known address is 1994 Carolina Circle NE, St. Petersburg, 

Florida. Q3H has never been registered with the Commission. 

13. Defendant Q3 I, LP is a limited partnership formed in Delaware on July 27, 2018. 

Q3I’s last known address is1994 Carolina Circle NE, St. Petersburg, Florida. Q3I has never 

been registered with the Commission.

14. Defendant Michael Ackerman is a resident of Alliance, Ohio. Ackerman was 

primarily responsible for the trading at Q3. Ackerman has never been registered with the 

Commission.

IV. STATUTORY BACKGROUND

15. Virtual currencies, like those Q3 purported to trade on behalf of its customers, are 

encompassed in the definition of “commodity” under Section 1a(9) of the Act, 7 U.S.C. § 1a(9)

(2018). For the purposes of this Complaint, a virtual currency means a digital representation of 

value that functions as a medium of exchange, a unit of account, and/or a store of value, but does 

not have legal tender status in any jurisdiction. Virtual currencies are distinct from “real” 

currencies, which are the coin and paper money of the United States or another country that are 

designated as legal tender, circulate, and are customarily used and accepted as a medium of 

exchange in the country of issuance. Virtual currencies typically use cryptographic protocols to 

secure transactions in that asset and use decentralized networks to track transactions between 

persons who are denominated only by publicly visible strings of characters. The transactions are 

captured in single blocks at a time, which independent operators (called “miners,” a virtual 

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analogy to actual miners whose efforts unearth gold, silver, and other precious metals) confirm 

by performing algorithmic proofs of work and for which they are usually awarded a sum of the 

virtual currency in question. The public nature of the decentralized ledger allows people to 

recognize the transfer of virtual currency from one user to another without requiring any central 

intermediary in which both users need to trust. 

V. FACTS

A. Operation of Q3 

16. In early 2017, Ackerman and the other Q3 founders opened a virtual currency 

trading account at a cryptocurrency exchange known as Kraken (the “Kraken account”). 

17. The Kraken account was initially funded with a combined $15,000 from 

Ackerman and the other Q3 founders, and Ackerman was responsible for the virtual currency 

trading in the account.

18. In or around July 2017, Ackerman and the other Q3 founders began to solicit 

family and friends to trade virtual currencies.

19. To open an “account” with Q3, Q3 customers sent funds to the personal bank 

account of a Q3 founder, or Q3’s bank account, where the funds were in turn transferred to a 

cryptocurrency exchange virtual currency account purportedly traded by Ackerman. 

20. Q3 had virtual currency trading accounts at cryptocurrency exchanges Kraken, 

Gemini, Coinbase, and Bitfinex. 

21. In these Q3 virtual currency trading accounts, Ackerman was purportedly using 

an algorithm he had created to trade various virtual currencies. 

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22. Q3 sustained a substantial trading loss in August 2017, after which Ackerman told

the other Q3 founders that he needed to change his trading strategy. As a result, the other Q3 

founders agreed to change the fund’s trading strategy and informed Q3’s existing customers.

23. After Ackerman implemented his purported new trading strategy using an

algorithm he created, he reported to the other Q3 founders that his virtual currency trading was 

highly successful, averaging monthly trading returns of approximately 15%. 

B. Defendants Made False and Misleading Representations, and 

 Omitted Material Facts, To Solicit Q3 Customers

24. During the Relevant Period, Defendants and other Q3 founders told prospective 

and existing Q3 customers that Q3’s virtual currency trading was consistently profitable and that 

Q3’s money under management continued to grow. 

25. During the Relevant Period, Defendants and other Q3 founders sent Q3 customers 

fraudulent account statements that contained fictitious account balances and monthly totals. 

26. During the Relevant Period, Defendants and other Q3 founders presented 

prospective and existing Q3 customers with fraudulent screenshots of Q3’s purported trading. 

These fraudulent screenshots indicated that Q3’s crypto currency trading accounts had grown to 

more than $200 million. In truth, Q3’s primary crypto currency trading account never had more 

than $6 million.

27. During the Relevant Period, Defendants and other Q3 founders fraudulently 

misrepresented to prospective and existing Q3 customers that the money in the Q3 trading 

account was secure because no one person could withdraw or transfer money from the Q3 

trading account without the consent of one or more of the other founders. 

28. During the Relevant Period, Defendants and other Q3 founders fraudulently 

misrepresented to prospective and existing Q3 customers that the money in the Q3 trading 

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account was safe because 70% of the funds in the trading account were kept in cash at all times 

and only 30% was used to trade. 

29. During the Relevant Period, Defendants knowingly made the following false and 

fraudulent statements and material omissions to prospective and existing Q3 customers to 

conceal Defendants’ fraudulent scheme:

a) “On average we make about 0.5% daily on invested income. Yes you read that 

correctly. And that amount is compounded continuously as profit is made.” 

b) “[W]e can offer tremendous returns of roughly 15% a month with precise and 

limited risk.”

c) “We make roughly 13-15% total profit for each month. This has been a consistent 

pattern over the last six months.” 

d) “Profits are continuously reinvested thus compounding continuously. These 

returns have been consistent since August 2017.” 

e) “There are a few costs of operations (minor salaries, an office, licensing fees and 

other costs).”

f) “The algos are right about 75% of the time and wrong 25%. So we make much 

more money than we lose.” 

g) “It’s much less risky than buying and holding a coin that could go to zero.” 

h) “Luckily the algos are correct in predicting the direction of momentum for a coin 

75% of the time – I’ll take that in Vegas any day. We end up losing on 1 of 4 

trades. Nets us positive everyday.” 

i) “In fact we haven’t had a negative day in 6 months!” 

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j) “[B]y having a mathematically guaranteed loss ratio that is below 25%, we can 

guarantee winning trades as long as there is volatility in the marketplace.”

k) “[W]e have mathematically determined a strategy that allows us to gain more than 

we lose in an any life cycle.”

l) “We continue to remain spot on with our programming, continual enhancements 

and ratio goals. What started out with an eye towards a great way to make a little 

money has quickly manifested into a longer-term proposition.”

m) “It’s been a winning strategy that has been tested through every peak and trough 

of this market over the last two years without failing.”

n) “Algorithms are managed 24/7 by our chief trading officer, Michael Ackerman.” 

C. Defendants Misappropriated Q3 Customers’ Funds 

30. During the Relevant Period, Defendants received in excess of approximately $33 

million from more than 150 Q3 customers. 

31. During the Relevant Period, Defendants misappropriated a substantial majority of 

the Q3 customers’ funds for improper and unauthorized uses, such as to wrongfully enrich 

themselves through the purchase of homes, cars, and other luxury items. 

32. Ackerman misappropriated approximately $7.4 million for himself, and used 

these funds to purchase several homes, among other things. 

33. During the Relevant Period, Defendants directed Q3 customers to transfer funds 

into bank accounts controlled by or operated for the benefit of Defendants. 

34. For instance, Defendants instructed Q3 customers to transfer funds into a bank 

account held in the name Q3 at Signature Bank. 

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35. Upon receipt, or very soon thereafter, these customer funds were transferred to 

other accounts controlled by Ackerman or other Q3 founders, where the money was 

misappropriated by Defendants. 

36. To the extent any Q3 customers received any purported investment redemptions 

from the Defendants, those purported redemptions actually consisted of funds that Defendants 

misappropriated from other Q3 customers, in the nature of a Ponzi scheme. 

37. For example, on October 1, 2019, Q3 held $873,000 in its Q3I account and 

$1,996,457.11 in its Q3H accounts at Signature Bank. Then in early October 2019, Q3 received 

a redemption request for $3,000,000 from existing Q3 Customer A. 

38. To meet Customer A’s $3,000,000 redemption request, Q3 transferred

approximately $996,000 of other Q3 customer funds from Q3’s trading account at a virtualcurrency exchange to its Q3 I, LP bank account at Signature Bank, from which Customer A’s 

$3,000,000 redemption request was paid. 

39. Additionally, from October 1, 2019, through October 2, 2019, Q3 received new 

funds from five customers totaling $797,000. Q3 deposited these new funds into its Signature 

Bank account. 

40. Then on October 2, 2019, Defendants wired $500,000 to Ackerman and 

$517,767.16 to the other Q3 founders from the Q3 Signature Bank account. 

C. Ackerman Was a Controlling Person of Q3

41. Ackerman was a controlling person of Q3. Ackerman was a founder of Q3 and 

had trading authority over the Q3 trading accounts. Ackerman also created the algorithm that Q3 

used to conduct the limited trading it did and Ackerman prepared reports and statements centered 

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on his trading that were given to Q3 customers. Ackerman also had the ability to hire, fire, and 

set salaries for certain employees at Q3. 

D. Ackerman Acted as an Agent for Q3

42. Through his solicitation of potential and existing Q3 customers, his active 

marketing of Q3 by providing information regarding his trading of the Q3 accounts, and his 

cryptocurrency trading, Ackerman acted as an agent of Q3. 

VI. VIOLATIONS OF THE COMMODITY EXCHANGE ACT AND REGULATIONS

Count I—Fraud by Deceptive Device or Contrivance 

Violations of Section 6(c)(1) of the Act and 

Regulation 180.1(a) by Defendants

43. Paragraphs 1 through 42 are re-alleged and incorporated herein by reference. 

44. Section 6(c)(1) of the Act, 7 U.S.C. § 9(1) (2018), makes it unlawful for any 

person, directly or indirectly, to: 

use or employ, or attempt to use or employ, in connection with . . . 

a contract of sale of any commodity in interstate commerce . . . any 

manipulative or deceptive device or contrivance, in contravention 

of [Regulation 180.1] . . . . 

45. Regulation 180.1(a), 17 C.F.R. § 180.1(a) (2019), provides: 

It shall be unlawful for any person, directly or indirectly, in 

connection with any . . . contract of sale of any commodity in 

interstate commerce . . . 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 . . . . 

46. Virtual currencies are encompassed in the definition of “commodity” under 

Section 1a(9) of the Act, 7 U.S.C. § 1a(9) (2018). 

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47. As described above, Defendants violated 7 U.S.C. § 9(1) and 17 C.F.R. 

§ 180.1(a) by, among other things, in connection with contracts of sale of commodities in 

interstate commerce (i.e., virtual currencies), making or attempting to make untrue or misleading 

statements of material fact or omitting to state or attempting to omit material facts necessary in 

order to make statements made not untrue or misleading, including without limitation, the 

following: 

a) Issuing written statements misrepresenting the monthly rate of return for 

the Q3 accounts; 

b) Issuing written statements mispresenting the total value of the Q3 account; 

c) Verbally misrepresenting that Q3 trading accounts were secure because 

withdrawals and transfers required verification from multiple Q3 founders; 

and

d) Failing to disclose, and omitting, that Defendants were misappropriating 

Q3 customer funds. 

48. As described above, Defendants violated 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1(a) 

by, among other things, in connection with contracts of sale of a commodity in interstate 

commerce (i.e., virtual currencies), using or employing or attempting to use or employ deceptive 

devices, schemes, or artifices to defraud, and engaged or attempted to engage in acts, practices, 

or courses of business, which operate or would operate as a fraud or deceit upon any person, by 

soliciting customers with false and misleading statements about Q3’s trading activity, providing 

Q3 customers with false account statements and screenshots, and misappropriating Q3 

customers’ funds. 

49. Defendants engaged in the acts and practices described above intentionally or 

recklessly. 

50. By this conduct, Defendants violated 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1(a). 

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51. The acts, omissions, and failures of Ackerman described in this Complaint 

occurred within the scope of his agency, employment, or office at Q3. Accordingly, Q3 is liable 

under Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B) (2018), and Regulation 1.2, 17 C.F.R. 

§ 1.2 (2019), as a principal for its agent’s acts, omissions, or failures in violation 7 U.S.C. § 9(1) 

and 17 C.F.R. § 180.1(a). 

52. At all times relevant to this Complaint, Ackerman controlled Q3, directly or 

indirectly, and did not act in good faith or knowingly induced, directly or indirectly, Q3’s

conduct constituting the violations by Q3 described in this Count. Accordingly, pursuant to 

Section 13(b) of the Act, 7 U.S.C. § 13c(b) (2018), Ackerman is liable for Q3’s violations of 7 

U.S.C. § 9(1) and 17 C.F.R. § 180.1(a). 

VII. PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court, as authorized by 

Section 6c of the Act, 7 U.S.C. § 13a-1 (2018), and pursuant to its own equitable powers: 

a) Find that Defendants violated Section 6(c)(1) of the Act, 7 U.S.C. 

§ 9(1) (2018), and Regulation 180.1(a), 17 C.F.R. § 180.1(a) (2019); 

b) Enter an order of permanent injunction enjoining Defendants and any affiliates, 

agents, servants, employees, successors, assigns, attorneys, and all persons in active concert with 

them, who receive actual notice of such order by personal service or otherwise, from engaging in 

the conduct described above, in violation of 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1(a). 

c) Enter an order of permanent injunction restraining and enjoining Defendants and 

any affiliates, agents, servants, employees, successors, assigns, attorneys, and all persons in 

active concert with them, from directly or indirectly: 

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i. Trading on or subject to the rules of any registered entity (as that term is 

defined in Section 1a(40) of the Act, 7 U.S.C. § 1a(40) (2018));

ii. Entering into any transactions involving “commodity interests” (as that 

term is defined in Regulation 1.3, 17 C.F.R. § 1.3 (2019)), for their own 

personal account(s) or for any account in which Defendants have a direct 

or indirect interest;

iii. Having any commodity interests traded on Defendants’ behalf; 

iv. Controlling or directing the trading for or on behalf of any other person or 

entity, whether by power of attorney or otherwise, in any account 

involving commodity interests; 

v. Soliciting, receiving, or accepting any funds from any person for the 

purpose of purchasing or selling any commodity interests; 

vi. Applying for registration or claiming exemption from registration with the 

Commission in any capacity, and engaging in any activity requiring such 

registration or exemption from registration with the Commission, except 

as provided for in Regulation 4.14(a)(9), 17 C.F.R. § 4.14(a)(9) (2019); 

and/or 

vii. Acting as a principal (as that term is defined in Regulation 3.1(a), 17 

C.F.R. § 3.1(a) (2019)), agent, or any other officer or employee of any 

person, registered, exempted from registration, or required to be registered 

with the Commission (except as provided for in 17 C.F.R. § 4.14(a)(9)); 

d) Enter an order directing each Defendant to pay a civil monetary penalty, to be 

assessed by the Court, in an amount not to exceed the penalty prescribed by Section 6c(d)(1) of 

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the Act, 7 U.S.C. § 13a-1(d)(1) (2012), as adjusted for inflation pursuant to the Federal Civil 

Penalties Inflation Adjustment Act Improvements Act of 2015, Pub. L. 114-74, 129 Stat. 584, 

title VII, Section 701, see Regulation 143.8, 17 C.F.R. § 143.8 (2019), for each violation of the 

Act and Regulations, as described herein; 

e) Enter an order directing Defendants, as well as any third-party transferee and/or 

successors thereof, to disgorge, pursuant to such procedure as the Court may order, all benefits 

received including, but not limited to, trading profits, revenues, salaries, commissions, fees, or 

loans derived directly or indirectly from acts or practices which constitute violations of the Act 

and Regulations, as described herein, including pre- and post-judgment interest;

f) Enter an order requiring Defendants, as well as any successors thereof, to make 

full restitution to every person who has sustained losses proximately caused by the violations 

described herein, including pre- and post-judgment interest; 

g) Enter an order directing Defendants, as well as any successors thereof, to rescind, 

pursuant to such procedure as the Court may order, all contracts and agreements, whether 

express or implied, entered into between, with, or among Defendants and any customer or 

investor whose funds were received by Defendants as a result of the acts and practices which 

constituted violations of the Act and the Regulations, as described herein; 

h) Enter an order directing that Defendants, and any successors thereof, make an 

accounting to the Court of all of their assets and liabilities, together with all funds they received 

from and paid to investors and other persons in connection with commodity transactions and all 

disbursements for any purpose whatsoever of funds received from commodity transactions, 

including salaries, commissions, interest, fees, loans, and other disbursement of money or 

property of any kind from at least August 2017 to the date of such accounting; 

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i) An order requiring Defendants and any successors thereof to pay costs and fees as 

permitted by 28 U.S.C. §§ 1920 and 2412(a)(2) (2012); and

j) An order providing such other and further relief as the Court may deem necessary 

and appropriate under the circumstances. 

* * * 

Dated: February 11, 2020 Respectfully submitted,

COMMODITY FUTURES TRADING COMMISSION

By: S/Jonah E. McCarthy 

Jonah E. McCarthy (S.D.N.Y. Bar No. JM1977) 

Senior Trial Attorney

jmccartthy@cftc.gov

Jason Gizzarelli (pro hac vice application to be submitted) 

Senior Trial Attorney

jgizzarelli@cftc.gov 

Luke Marsh (pro hac vice application to be submitted) 

Chief Trial Attorney

lmarsh@cftc.gov

Paul G. Hayeck (pro hac vice application to be submitted) 

Deputy Director 

phayeck@cftc.gov 

Commodity Futures Trading Commission

Division of Enforcement 

1155 21st Street, NW

Washington, D.C. 20581 

Phone: (202) 418-5000 

Fax: (202) 418-5428 

ATTORNEYS FOR PLAINTIFF

COMMODITY FUTURES TRADING COMMISSION

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