US Regulator Sues Three Companies For Cryptocurrency Fraud

The U.S. Commodity Futures Trading Commission has filed charges against three separate companies for engaging in fraudulent schemes involving cryptocurrencies. The cases include fraud and misappropriation of bitcoin and litecoin.Also read: South Korean Officials Caught Trading On Insider Knowledge of Crypto Regulations

CFTC Sues Crypto Operators

The U.S. Commodity Futures Trading Commission (CFTC) filed civil enforcement actions in a New York District Court on Thursday against three separate cryptocurrency operators for allegedly defrauding customers and breaking commodity trading rules. The agency proceeded to post details of two of the cases on its website on Friday.The first case concerns Colorado resident Dillon Michael Dean and his UK-registered company, the Entrepreneurs Headquarters Ltd. They solicited $1.1 million worth of bitcoin from over 600 members of the public from April 2017 to the present, promising to convert them into fiat currency and invest in a pooled investment vehicle such as binary options. Dean claims to have “strong skills” in options trading and customers were promised high rates of return, the CFTC detailed.

However, the derivatives watchdog alleges that the defendants did not trade on behalf of their customers but misappropriated over $1 million in customers’ funds. Dean also launched another similar trading venture called Real Trade Profits.Citing that the defendants failed to register with the Commission as a Commodity Pool Operator (CPO) and Associated Person of a CPO, the agency stated:

The CFTC Complaint charges the defendants with engaging in a fraudulent scheme to solicit bitcoin from members of the public, misrepresenting that customers’ funds would be pooled and invested in products including binary options, making Ponzi-style payments to commodity pool participants from other participants’ funds, [and] misappropriating pool participants’ funds.

Bitcoin and Litecoin Related Fraud

The second case concerns Patrick K. Mcdonnell and his company Cabbage Tech. Corp., doing business as Coin Drop Markets (CDM).The CFTC is “charging them with fraud and misappropriation in connection with purchases and trading of bitcoin and litecoin.” Citing that neither Mcdonnell nor his company has ever been registered with the agency in any capacity, the regulator added:

The CFTC Complaint alleges that from approximately January 2017 to the present, Mcdonnell and CDM engaged in a deceptive and fraudulent virtual currency scheme 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 Commission found that “the supposedly expert, real-time virtual currency advice was never provided,” adding that customers never saw the funds they sent to Mcdonnell or CDM again. Furthermore, the agency stated that the defendants “removed the website and social media materials from the Internet and ceased communicating with CDM Customers, who lost most if not all of their invested funds due to [the] defendants’ fraud and misappropriation.”The third case, however, “remained under seal,” Reuters described. At the time of this writing, the CFTC has not released the details of the third case.