On January 19, 2018, the Commodity Futures Trading Commission (CFTC) announced that it filed a federal civil enforcement action in the US District Court for the Eastern District of New York against defendant Patrick K. McDonnell and Cabbage Tech, Corp (doing business as Coin Drop Markets, or CDM). McDonnell and CDM are charged with fraud and misappropriation connected with the purchase and trading of bitcoin and Litecoin.
"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," stated CFTC director of enforcement James McDonald. "As alleged, the Defendants here preyed on customers interested in Bitcoin and Litecoin, promising them the opportunity to get the inside scoop on the next new thing and to benefit from the trading acumen of a supposed expert. In reality, as alleged, customers only bought into the Defendants' fraudulent scheme. We will continue to work hard to identify and remove bad actors from these markets."
Per the CFTC complaint, over the last year, McDonnell and CDM solicited money and virtual currencies from customers in exchange for trading advice (which was never provided). It appears that McDonnell and CDM might have also claimed to purchase or trade cryptocurrencies on behalf of customers. Those funds were apparently misappropriated – really just outright stolen – according to the CFTC. In addition to suspiciously removing its social media presence and website, the complaint further contends that the defendants also failed to register with the CFTC.
Yesterday, the CFTC also filed charges against The Entrepreneurs Headquarters Limited and Dillon Michael Dean, a resident of Longmont, Colorado. Dean allegedly ran a fraudulent, Ponzi-style scheme, falsely promising to invest participants' funds in cryptocurrency products including binary options.
The third case remains sealed as of Friday morning. However, directors for the CFTC and SEC issued a joint statement on their continued dedication to virtual currency enforcement actions. Next month, the agencies are due to testify before the Senate Banking Committee on cryptocurrency regulation.