On Tuesday, September 19, 2023, Rashawn Russell, a former investment banker at Deutsche Bank, pleaded guilty to multiple counts of fraud. This marked a significant shift in his defense strategy and ended months of legal wrangling.

Russell was charged in April with misappropriating funds from investors he wooed with promises of big returns from cryptocurrency trading. He was accused of operating a fraudulent crypto investment fund known as the “R3 Crypto Fund,” in which he defrauded 29 investors out of $1.5 million between November 2020 and August 2022.

As part of his plea agreement, Russell will be required to pay restitution in the amount of more than $1.5 million. He faces up to 30 years in prison when sentenced.

The Scheme

Russell used his reputation as an investment banker and licensed financial broker to promise guaranteed, outsized returns on a series of crypto investments. He told prospective investors that he was a licensed broker who worked in investment banking and could help them earn large and sometimes guaranteed returns from R3, a cryptocurrency fund he claimed to run.

However, prosecutors said Russell transferred some funds into a trading account but siphoned the rest, and sent fake documentation to investors about how their money was doing. He also sent altered images of his bank balance to his investors, and in one instance, when an investor sought to cash in on one of their crypto investments, Russell never sent the money and instead sent his victim a fabricated money transfer confirmation.

Misuse of Funds

Most of the $1.5 million obtained from his victims was not used for investing in crypto assets as promised. Instead, Russell misappropriated these funds for personal benefit, gambling, and repaying earlier investors. 

“Russell leveraged investor interest in cryptocurrency markets to perpetrate a scheme to defraud clients who trusted him,” stated United States Attorney for the Eastern District of New York Breon Peace. “The swift conviction in this case underscores this Office’s commitment to holding bad actors in the digital asset markets accountable.”

“The Postal Inspection Service proudly protects Americans from ever-evolving threats of fraud,” stated USPIS Inspector-in-Charge Eric Shen. “This case showcases our dedication to bring to justice those who violate their fiduciary duty to their clients.”

The case first gained public attention when initial charges were filed against Russell in April 2023. Since then, additional charges have surfaced, potentially extending his jail time by another decade. The swift conviction underlines the commitment of authorities to hold accountable those who exploit the digital asset markets.

This case serves as a reminder of the need for stringent oversight in digital asset markets and the consequences that parties face in these digital markets. The guilty plea comes as a warning to investors to exercise caution and due diligence, especially in sectors like cryptocurrency, where regulation is still evolving.