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Fraudulent Virtual Currency Scheme Enforcement Action

Fraudulent Virtual Currency Scheme Enforcement Action

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CFTC Charges Patrick K. McDonnell & CabbageTech, Corp. d/b/a Coin Drop Markets, With Engaging in Fraudulent Virtual Currency Scheme

On January 19, 2018, the Commodity Futures Trading Commission (“CFTC”) issued a press release stating that the CFTC filed a federal civil enforcement action in the United States District Court, Eastern District of New York, against Defendants Patrick K. McDonnell, of Staten Island, New York, and CabbageTech, Corp., d/b/a Coin Drop Markets, a New York corporation (“Defendants”), charging the Defendants with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.

Fraudulent Virtual Currency Scheme Enforcement Action: Virtual Currency Customers Fraudulently Induced to Send Money & Virtual Currencies

The CFTC complaint alleges that from approximately January 2017 to the present, the Defendants engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to Coin Drop Markets, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction.

According to the CFTC complaint, the supposedly expert, real-time virtual currency advice was never provided, and customers who provided funds to the Defendants to purchase or trade on their behalf never saw those funds again. In short, the Defendants used their fraudulent solicitations to obtain and misappropriate customer funds.

Fraudulent Virtual Currency Scheme Enforcement Action: Defendants Concealed Scheme

The CFTC complaint alleges that Defendants concealed their virtual currency scheme soon after obtaining customer funds by removing the website and social media materials from the Internet, in addition to stopping communication with Coin Drop Market Customers who lost most, if not all, of their invested funds due to Defendants’ fraud and misappropriation.

The CFTC complaint (CFTC v. McDonnell, et al, No. 18-0361) also alleges that the Defendants have never been registered with the CFTC in any capacity, and the CFTC action seeks injunctive and other equitable relief for civil monetary penalties under the Commodity Exchange Act and Commission Regulations.

Fraudulent Virtual Currency Scheme Enforcement Action: CFTC’s Director of Enforcement Comments

The CFTC’s Direcotr of Enforcement, James McDonald, stated that, “[a]s 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.”

Fraudulent Virtual Currency Scheme Enforcement Action

Image: Bitcoin, Tumisu, CC0 1.0 Universal

Cryptocurrency & Initial Coin Offering Investor Information

Please click Kehoe Law Firm, P.C. for more information about cryptocurrencies, Initial Coin Offerings, and other class action investigations. Bitcoin and other cryptocurrency Investors are also encouraged to review the following SEC and CFTC cryptocurrency- and Initial Coin Offering-related information:

SEC Chairman Jay Clayton Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017)

SEC Division of Enforcement and SEC Office of Compliance Inspections and Examinations Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017)

Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017)

Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25, 2017)

Investor Bulletin: Initial Coin Offerings (July 25, 2017)

Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014)

Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013)

CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading (December 15, 2017)

A CFTC Primer on Virtual Currencies (October 17, 2017)

Source: CFTC.gov and SEC.gov

Kehoe Law Firm, P.C.