The U.S. Commodity Futures Trading Commission (CFTC) has filed multiple lawsuits against three cryptocurrency based companies.
This is the first time that the CFTC has taken such actions regarding cryptocurrency based companies. The most recent involvement that the CFTC has had in the cryptocurrency industry has been their allowance of Bitcoin futures December 2017.
Regarding CabbageTech Lawsuit
In the lawsuit on CabbageTech, the CFTC named Patrick K. McDonnell and his company, Coin Drop Markets, as entities that had been involved in fraudulent activities in regards to trading Bitcoin and Litecoin.
The lawsuit alleged that McDonnell and his company deceived customers to provide payments in return for trading advice. The lawsuit also noted that the company acted as an entity that would purchase and trade cryptocurrency on behalf of their customers. However, there was one simple problem, neither the advice nor any returns were provided to the customers.
The CFTC further alleges that after obtaining customers’ funds, the company shut down its website and social media platforms, stopping all communications with customers who never saw their funds again. The CFTC continued, stating that neither McDonnell nor any of his named companies were ever registered with the CFTC.
Entrepreneurs Headquarters lawsuit
In the lawsuit against Entrepreneurs Headquarters, the CFTC alleges that the company and its owner Dillon Michael Dean ran a fraudulent scheme to obtain Bitcoin from unsuspecting investors by telling them that they will have their funds pooled and invested in different financial products like binary options.
It is further alleged that the defendants then made Ponzi scheme style payments to initial investors by using funds obtained from other, new investors that came into the scheme later. The CFTC also alleged that the company and Dean did not register as a Commodity Pool Operator (CPO) and Associated Person of a CPO, respectively.
CFTC alleges that more than $1.1 million in Bitcoin were obtained by the defendants through their scheme, from around 600 investors.
CFTC seeks to ensure that only legitimate companies remain in business
Speaking about both of these instances – while the third remained under seal – James McDonald, CFTC’s Director of Enforcement, mentioned that the institution is not going to let such fraudulent operations execute their plans. The Director noted further that his organization would continue its campaign on enforcing legitimacy in companies participating the cryptocurrency industry.
He further mentioned that a growing interest in Bitcoin and other cryptocurrencies is causing fraudsters to get creative about their schemes.
“Increased public interest in Bitcoin and other virtual currencies has provided new opportunities for bad actors,” McDonald had explained. “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,” He said.
“We will continue to work hard to identify and remove bad actors from these markets.” He concluded.
CFTC issues an advisory
The CFTC has recently issued a customer advisory explaining the risks involved with cryptocurrency investments.
The watchdog has done so because there has been an increasing interest by the public in cryptocurrencies and investment opportunities related to the industry and with the increasing appetite comes further risk.
The organization also provides contact information for reporting cases where customers have unknowingly landed into a fraudulent scheme.
The advisory can be accessed here.