Court Dismisses Claims Against Two Defendants in Cryptocurrency Fraud Scheme

News | February 13, 2024 By:

On Wednesday, January 31, 2024, the United States District Court for the Western District of Kentucky issued an order granting in part a motion to dismiss claims against two defendants in an alleged cryptocurrency fraud scheme.

Mike Spindler and other individual investors claimed they were defrauded by Just a Bit of Coin and its affiliates after paying the company for bitcoin mining machines that were never delivered. In their first amended complaint, the plaintiffs asserted eight causes of action including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), wire fraud, common law fraud, breach of contract, negligence, misrepresentation, unjust enrichment and violations of the Kentucky Consumer Protection Act.

Ten individuals and entities were named as defendants in the case, including Just a Bit of Coin as well as Donald and Joann Drawdy. Court documents state the Drawdys are the uncle and aunt of the alleged mastermind behind the scheme, who is now under indictment in Georgia for unrelated charges.

The Drawdys filed a pro se motion to dismiss the claims against them, arguing they were only briefly listed as officers of the company and had no real involvement in or awareness of the alleged fraudulent activities. They maintained they were also elderly victims of their nephew’s scheme.

In its order, the district court examined the allegations related specifically to the Drawdys in the amended complaint. It found the complaint only mentioned the Drawdys in three brief paragraphs, one of which contained a conclusory statement regarding the Drawdys’ ownership and control of Just a Bit of Coin to classify them as “alter egos” without providing facts to support this determination. The other two paragraphs noted the Drawdys were listed as officers on corporate documents but alleged no other details about their role or involvement in the company.

Considering the fraud-related claims required a heightened pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure, the court determined the amended complaint failed to properly allege the specific “time, place and content” elements required to plausibly plead wire fraud, common law fraud, misrepresentation or RICO violations against the Drawdys. It also ruled the other claims did not allege sufficient facts that would support finding the Drawdys liable if proven true, as required under the general pleading standard of Rule 8.

However, the district court dismissed the claims against the Drawdys without prejudice, leaving open the possibility for the plaintiffs to further amend their complaint in the future to properly plead factual allegations that could plausibly demonstrate the liability of Donald and Joann Drawdy based on their actual involvement or control over the alleged fraudulent scheme. The claims against the other eight defendants remain ongoing.

Please contact BlockTribune for access to a copy of this filing.