What has happened?

The US Commodity Futures Trading Commission (CFTC) has brought three lawsuits for allegedly fraudulent cryptocurrency schemes.

What does this mean?

In the space of a few days, the CFTC has started three suits for alleged scams involving virtual currencies, which is testament to the watchdog's increased scrutiny over the sector.

In the first case, New York resident Patrick Kerry K. McDonnell and his company CabbageTech are being sued for "fraudulent solicitations to obtain and then simply misappropriate customer funds".

According to the press release, the agency alleges that McDonnell, who was pretending to be an expert, induced customers to send money and virtual currencies to his company, in exchange for virtual currency trading advice and to purchase and trade virtual currencies on their behalf.

The CFTC alleges that the advice never came and customers who provided funds never saw those again.

Subsequently, the regulator alleges that McDonnell stopped communicating with his customers and misappropriate their funds.

The CFTC seeks, among other things:

"Restitution to defrauded customers, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, trading bans, and a permanent injunction against future violations of federal commodities laws".

In the second case, the CFTC alleges that Dillon Michael Dean from Colorado and his UK-registered company, The Entrepreneurs Headquarters Ltd, solicited at least $1.1 million in bitcoin from over 600 members of the public, as part of a pool investment vehicle for trading commodity interests.

According to the press release, the pool included binary options on an online exchange designated as a contract market by the CFTC.

The watchdog alleges that more than $1 million of customers' funds were misappropriated.

The CFTC seeks, among other things:

"Restitution to defrauded persons, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations."

The CFTC said that the defendants in both cases were not registered with it.

Both cases were filed in the federal court of the Eastern District of New York.

In the third case, Randall Crater of New York, Mark Gillespie of Michigan and Nevada-incorporated company My Big Coin Pay are alleged to have solicited more than $6 million for investments in a virtual currency known as "My Big Coin" (MBC).

The defendants are alleged to have made "false and misleading claims and omissions about MBC's value, usage and trade status, and that MBC was backed by gold" on MBC's website.

The complaint alleges that the defendants transferred customer funds into personal bank accounts and used them for personal expenses and to buy luxury goods.

The Massachussetts federal court issued a restraining order freezing the defendants' assets and protecting books and records.

 

For more news and analysis that is tailored to you, as well as access to Hogan Lovells' cutting-edge interactive Lawtech tools, register for free on Engage.

You can also keep track of all the Engage content by following our LinkedIn page.