Commodity Futures Trading Commission (CFTC) Files Bitcoin Enforcement Action
On January 18, 2018, the CFTC, with assistance from the CFTC’s Division of Enforcement Virtual Currency Task Force, filed a federal civil enforcement action in the U.S. District Court for the Eastern District of New York against Defendants Patrick K. McDonnell, and CabbageTech, Corporation. d/b/a Coin Drop Markets(CDM), a New York corporation, charging them with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.
James McDonald, the CFTC’s Director of Enforcement, commented: “This action is among the latest examples of the CFTC’s continuing commitment to act aggressively and assertively to root out fraud and bad actors involved in virtual currencies. As alleged, the Defendants here preyed on customers interested in Bitcoin and Litecoin, promising them the opportunity to get the inside scoop on the next new thing and to benefit from the trading acumen of a supposed expert. In reality, as alleged, customers only bought into the Defendants’ fraudulent scheme. We will continue to work hard to identify and remove bad actors from these markets.”
The Defendants allegedly engaged in a deceptive, fraudulent virtual currency to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction. The Complaint alleges that the supposed expert, real-time virtual currency advice was never provided, and customers who provided funds to McDonnell and CDM to purchase or trade on their behalf never saw those funds again.
The CFTC Complaint further alleges that to conceal their scheme, Defendants, neither of whom registered with the CFTC, removed their website and social media materials from the Internet and ceased communicating with customers, who lost most if not all their invested funds due to Defendants’ fraud and misappropriation.
The CFTC has issued a Customer Advisory on the Risks of Virtual Currency Trading to inform the public of possible risks associated with investing or speculating in virtual currencies or recently launched Bitcoin futures and options. The CFTC has also issued several other customer protection Fraud Advisories that provide the warning signs of fraud.
Thank you Carl Purdue for this contribution.