Federal regulators file fraud charges against three bitcoin operators

Bitcoin Cash
Following an already rough month for bitcoin, three U.S. virtual currency operators have been charged with fraud by the United States Commodity Futures Trading Commission (CFTC). The CFTC alleges that CabbageTech, Entrepreneurs Headquarters Ltd., and one unnamed bitcoin operator have engaged in fraud, misappropriation of funds, and misrepresentation, causing significant financial harm to investors.

The complaint goes on to allege that Patrick K. McDonnell and his company, CabbageTech, doing business as Coin Drop Markets, made false promises to investors. The CFTC alleges that Coin Drop Markets promised bitcoin trading advice to investors as well as bitcoin purchasing and trading on investors’ behalf. The complaint goes on to allege that Coin Drop Markets never delivered on those promises, and investors never saw their money again after handing it over to Coin Drop Markets.

“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,” a statement from the CFTC reads. “In reality, as alleged, customers only bought into the Defendants’ fraudulent scheme.”

The second complaint, filed against Dillon Michael Dean and his company, Entrepreneurs Headquarters Ltd., alleges a more complicated Ponzi-type scheme using cryptocurrencies. The CFTC alleges that Entrepreneurs Headquarters Ltd. solicited bitcoin from investors with promises that their investments would be pooled and traded. Instead, the complaint alleges that the company took more than $1.1 million in bitcoin from over 600 investors and promised high rates of return which the company never delivered on. Instead, the company allegedly used investors money to pay other investors, like a high-tech Ponzi scheme.

“Potential pool participants were solicited to invest with Defendants by false claims of trading expertise and promises of high rates of return. The Complaint further alleges that, rather than convert customers’ Bitcoin to fiat currency to invest in binary options contracts, as promised, Defendants misappropriated their customers’ funds, including by using the funds to pay other customers, in the manner of a Ponzi scheme,” a statement from the CFTC reads.

These are the first such actions the CFTC has filed since it initially authorized bitcoin futures trading on December 18, 2017.

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