The US Commodity Futures Trading Commission has filed civil cases against virtual currency operators CabbageTech, Entrepreneurs Headquarters Ltd., and My Big Coin Pay Inc. The regulator is alleging fraud, misappropriation, misrepresentation, and other allegations. Its wants disgorgement, fines, restitution, injunctions, and other remedies.
In the case against CabbageTech, doing business as Coin Drop Markets, and its owner Patrick K. McDonnell, the Defendants are accused of participating in a virtual currency scam to solicit investor for funds and virtual money, supposedly in exchange for real time trading advice and the sale and trading of virtual currency under McDonnell’s guidance. Instead, claims the CFTC, investors received no such advice and they never saw their money again because McDonnell and CabbageTech misappropriated their funds. The regulator believes that the defendants sought to hide their scam by eliminating their online and social media presencse and ending communications with customers.
The CFTC’s civil action against McDonnell and his company was announced the same day as its case against The Entrepreneurs Headquarters Limited, which is a company registered in the UK, and founder Dillon Michael Dean. The regulator believes that beginning in April 2017 through now, the defendants solicited at least $1.1M of Bitcoin from over 600 investors, with the promise that the Bitcoin would be turned into fiat currency and invested in a pooled investment vehicle to trade commodity interests.
Prospective participants were promised high return rates and that their investments would be handled by individuals who were experts at trading. Solicitation for funds occurred through YouTube, Facebook posts, and company websites.
Now, Dean and The Entrepreneurs Headquarters are accused of misappropriating over $1M in customer money. Meantime, Dean reportedly has set up another trading venture named Real Trade Profits. Once again, a website is being used to solicit Bitcoin to be used in a pooled investment, this one involving binary options trading. High return rates have been promised.
In the regulator’s case against My Big Coin Pay, the CFTC is alleging a $6M commodity fraud involving the virtual currency called My Big Coin. Other Defendants are Randall Crater and Mark Gillespie, who are accused of using investors’ money for their own lavish expenses.
In a joint statement, CFTC Enforcement Director James McDonald and SEC Enforcement Directors Steven Peikin and Stephanie Avakian said that digital instruments, including virtual currencies, tokens, and coins are not immune from prosecution for violations of “federal securities and commodities laws.”
Massachusetts Accuses Cayman Island Company of Selling Unregistered Securities
State regulators are also beginning to go after companies involved in digital currencies that are accused of fraud. The Massachusetts Secretary of the Commonwealth Securities Division has opened an administrative case against Kirill Bensonoff, a Brookline resident, and his Cayman Island based-company Caviar. The regulator contends that Bensonoff is running his company outside the US to circumvent federal securities laws.
Caviar, which has an initial coin offering going on, has reportedly raised more than $3M. The tokens tout quarterly dividends from an investment fund that combines real estate and cryptocurrencies. Now, Massachusetts Secretary of the Commonwealth William Galvin is alleging that the sale of unregistered securities is taking place.
It was just recently that the Texas State Securities Board and the North Carolina Securities Division accused the company BitConnect of selling tokens that were unregistered securities. Bitcoin has since shut down its investment lending platform.
Meantime, investors are starting to demand their money back. Cryptocurrency startup Centra Tech is now the defendant in a class action investor fraud lawsuit. Centra Tech raised $32M in its ICO last year. Now, the plaintiffs are contending that the company and its senior executives sold unregistered securities and lied to investors about creating a cryptocurrency debit card. While Centra claims that it was working with Visa on the cards, a spokesperson for the credit card company said there was no such collaboration in place. Centra denies the investor fraud allegations.
Investors Sue Celeb-Backed ICO: Company Has No Product or CEO, Observer.com, December 18, 2017
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FINRA Orders Citigroup to Pay $11.5M, Including at Least $6M to Investors, Over Inaccurate Stock Research Ratings, Stockbroker Fraud Blog, December 29, 2017
Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales, Institutional Investor Securities Blog, November 8, 2017
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