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US CFTC sues three virtual currency operators for fraud

19 January 2018

The U.S. government regulator in charge of futures markets, the Commodity Futures Trading Commission (CFTC), announced lawsuits against two different companies involved in bitcoin and other cryptocurrencies.

The CFTC also filed charges against Patrick K. McDonnell and his company CabbageTech, Corp, for charging potential clients for cryptocurrency investment advice that they never provided.

"Increased public interest in Bitcoin and other virtual currencies has provided new opportunities for bad actors", said James McDonald, the CFTC's director of enforcement.

"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", said McDonald.

Apparently, to hide their tracks the Defendants shut down their website and attempted to scrub all social media materials from the internet in a digital scrubbing.

The CFTC also filed a civil enforcement action against a Colorado man, Dillon Michael Dean, and his United Kingdom -based company, The Entrepreneurs Headquarters Ltd., alleging that they engaged 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, misappropriating pool participants' funds, and failing to register with the CFTC", the CFTC announcement says. But the CFTC says he "misappropriated" the funds, using them to pay other customers "in the manner of a Ponzi scheme".

The commission is seeking the return of funds to defrauded customers, among other actions in the civil litigation case. But, as alleged, Defendants were not actually engaged in trading on behalf of their customers, and Defendants' purported trading profits were fictitious.

CNNMoney was unable to contact Dean.

There are also fears that bitcoin and other cryptocurrency could threaten the security of the global economy; as a result, the USA isn't the only country taking action.

The SEC also created its new Cyber Unit to seek out "pump and dump" schemes involving ICOs and cryptocurrencies.

Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them.
In December the SEC froze the assets against PlexCorps, a company running an ICO for its own cryptocurrency, and filed charges against the Canadians who were allegedly running it. He pleaded not guilty.

US CFTC sues three virtual currency operators for fraud