Government ‘Watchdog’ Cracks Down of Fraudulent Digital Currency Operators
Friday, the US derivatives ‘watchdog’ said that it has filed charges against 3 separate virtual currency operators alleging the defendants had defrauded customers and broken other commodity trading rules, in a further sign regulators globally are cracking down on fraud in the ‘hot’ emerging asset class.
The lawsuits, filed by the Commodity Futures Trading Commission (CTFC) in a New York district court, come amid heightened fears globally over the risks that Bitcoin and other virtual currencies may pose to investors and the global financial system.
The CFTC charged New York resident Patrick McDonnell and his company CabbageTech with stealing money from customers that he had solicited for providing virtual-currency trading and other services.
In the 2nd case the CFTC alleged Dillon Michael Dean of Colorado and his UK-registered company Entrepreneurs Headquarters Ltd. operated a Ponzi scheme in which he solicited $1.1-M in Bitcoin from more than 600 investors, promising them that their cash would be pooled and invested.
The 3rd case remained under seal.
Messrs McDonnell and Dean could not be reached for comment Friday. Their company websites, appeared to have been taken down.
The enforcement actions are the 1st by the CFTC since it allowed the launch of Bitcoin futures in December, sparking criticism from some on Wall Street that the agency should have sought wider industry feedback ahead of the move.
Currently, Bitcoin is trading at:11,318.2148-427.78, or -3.64% at the close: 10:20p GMT, the market is closed.
Governments around the world are debating how to address risks posed by virtual currencies. SKorea, Japan and China all made noises in recent weeks about a regulatory crackdown while France and Germany will make joint proposals to regulate Bitcoin at the next Summit of the G20 group of major economies in March.
This month the CFTC and Securities and Exchange Commission warned investors about risks posed by virtual currency operators and have both been increasing their jurisdiction over the cryptocurrency market, which has no overriding federal regulator.
Last Thursday they issued a joint statement saying both agencies would “continue to address violations and to bring actions to stop and prevent fraud in the offer and sale of digital instruments.”