The US Commodity Futures Trading Commission (CFTC) is the latest financial watchdog to haul into court companies in the virtual currency space.
On Friday, the CFTC, which oversees the derivatives markets in America, announced a pair of civil lawsuits against businesses it claims defrauded customers out of their hard-earned wonga with cryptocurrency get-rich-quick schemes.
UK-registered business Entrepreneurs Headquarters Limited and its CEO Dillon Michael Dean, of Longmont, Colorado, are accused of running a Bitcoin investment plan that was actually a front for a classic Ponzi scheme.
The CFTC alleged that starting in April of last year, the biz had presented itself as a Bitcoin investment service that used the cryptocurrency it collected from investors to purchase binary options.
Rather than actually invest the Bitcoin, Dean and his organization were instead using the money they got from one pool of investors to pay out others, the commission told a New York district court in a filing this week.
In total, the CFTC believes the scheme netted $1.1m worth of Bitcoin from about 600 people when it stopped paying out. The watchdog said that Dean has since launched another investment company.
"Increased public interest in Bitcoin and other virtual currencies has provided new opportunities for bad actors," says CFTC director of enforcement James McDonald.
"As alleged in the Complaint, Defendants sought to take advantage of that public interest, offering retail customers the chance to use Bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme."
In addition to restitution and damages for the investors, the CFTC is seeking civil penalties and trading bans against Dean and his company.
The second CFTC case involves Coin Drop Markets, aka CabbageTech, a company that solicited investment tips and advice on Bitcoin and Litecoin trading.
According to the commission, CDM and its founder Patrick McDonnell, of Staten Island, New York, claimed to be experts who could help investors turn a quick profit on the day trading markets for cryptocoins.
"These groups purported to provide trading advice and guidance, such as entry and exit prices for day trading of certain virtual currencies," the CFTC said in its complaint.
"Defendants also solicited membership or subscription to other groups and services, such as a 'Turn-Key Annual Membership' providing access, for instance, to McDonnell’s and CDM’s supposed virtual currency trading expertise, mentorship, and guidance."
After taking money for the tips and investment services, the CFTC alleged in a filing to a New York district court that Coin Drop and McDonnell simply shut down the site, deleted social media accounts, and absconded with the coins.
The filing of both complaints comes as US financial regulators have begun turning a close eye to the booming virtual currency market. In addition to the CFTC's cryptocurrency enforcement efforts, the US Securities and Exchange Commission has waded into the space with the launch of a cyber crimes unit that focuses largely on virtual currencies and initial coin offerings. ®