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The US government is charging three bitcoin companies with fraud

January 19th, 2018 at 6:47 PM
Bitcoin fraud, Ponzi scheme

The US Commodity Futures Trading Commission has filed federal civil enforcement lawsuits against three virtual currency operators. The list of charges is extensive, and includes fraud, misrepresentation, and misappropriation in connection with trading Bitcoin.

The suit against one of the operators is sealed and not public, but the CFTC issued press releases detailing the action against the other two operators, CabbageTech (also known as Coin Drop Markets) and The Entrepreneurs Headquarters. The fact that three cryptocurrency companies are being sued, out of the hundreds that have sprung up overnight, isn’t exactly surprising, but the details of the case show exactly how ripe Bitcoin is for scams right now.

In the case of The Entrepeneurs Headquarters, the CFTC is alleging that the company was running a classic Ponzi scheme. The company and its owner, Dillon Michael Dean, are charged “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, misappropriating pool participants’ funds, and failing to register with the CFTC.”

James McDonald, the CFTC’s Director of Enforcement, said that Dean “sought to take advantage of that public interest, offering retail customers the chance to use Bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme. As this case shows, the CFTC will continue to take swift action to stop such fraudulent schemes and to hold fraudsters accountable for their misconduct.”

In the second case, the CFTC alleges that Patrick K. McDonnell and his company CabbageTech “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. In fact, as charged in the CFTC Complaint, the supposedly 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. In short, McDonnell and CDM used their fraudulent solicitations to obtain and then simply misappropriate customer funds.”

Once the fraud was discovered, McDonnell “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 Defendants’ fraud and misappropriation.” Basically, if a shady website you’ve never heard of before pops up and offers to take control of your untraceable, unrecoverable cryptocurrency, maybe think twice before grabbing your credit card.




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