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Three Cryptocurrency Operators Have Been Charged with Fraud

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The US Commodity Futures Trading Commission (CFTC) announced that it has filed a federal civil enforcement action against three virtual currency operators.  I’m not completely surprised.  I mean, obviously, this isn’t something that I wanted to see, but I’m not surprised that it’s happening.  The details of the one case remain sealed but the other two companies that are facing charges are – CabbageTech and Entrepreneurs Headquarters Ltd.  What are they being charged with?  Fraud, misrepresentation, misappropriation and more.  The CFTC and the Securities Exchange Commission (SEC) published a joint statement:

When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments.

In the case against Entrepreneurs Headquarters Ltd., the CFTC is alleging that they collected more than $1.1 million in Bitcoin from over 600 people.  This was part of a pooled investment for trading commodity interests.  The pool was said to invest in binary options contracts, however, the CFTC believes that they misappropriated the funds.  In the CabbageTech case, they are being sued for allegedly absconding with customers’ digital assets.  Both of these things are fairly significant, in my opinion.

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According to a complaint, the CFTC is alleging that CabbageTech owner, Patrick Kerry McDonnell branded himself as a cryptocurrency investment expert with trading advice that could result in highly attractive returns on investment.  For example, in one case, McDonnell allegedly claimed a return of 300% with his trading tips.  It’s believed that soon after customers sent in money and cryptocurrencies for his advisory services, McDonnell cut off communications with customers and simply misappropriated the funds.

But these aren’t the first time that the agency has acted on alleged wrongdoings involving cryptocurrencies.  Last year, the CFTC brought a suit against another man for an alleged Bitcoin Ponzi scheme.  The CFTC indicated that in the future, tokens issues through initial coin offerings may also be treated as commodities.  The big question I have related to all of this is whether or not there will be increased regulation of cryptocurrency in the future?

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While unrelated to these cases, Bitcoin is being used fraudulently in other areas.  Late last year, RCMP officers in British Columbia said a woman received a call from what she believed was her husband’s cell phone.  On the phone, was an individual posing as a police officer asking for bail money to secure her husband’s release.  Here’s where it gets interesting.  The caller instructed the woman to pay for his bail in Bitcoin – $5,000 worth to be exact.  The woman was duped and the call wasn’t from her husband at all.  She later received a call from her husband who was at home and had never been arrested in the first place.

While the two cases listed above haven’t been verified, I think it’s safe to say that there are fraudulent uses of cryptocurrency everywhere you go.  Which means, people need to be more diligent about who they invest their money with, and even who they send money to.  Can you even post bail with cryptocurrency?  I mean, it’s unregulated, so I don’t know if that’s something that would fly.  I don’t know, as I haven’t been arrested, but even if it is allowed, it’s risky to all the individuals involved.  That said, you need to remain vigilant when it comes to protecting your cryptocurrency.