Preliminary Injunction Order Issued Against Patrick K. McDonnell and His Company, CabbageTech, Corp., d/b/a Coin Drop Markets, in Connection with Fraudulent Virtual Currency Scheme
On March 6, 2018, the Commodity Futures Trading Commission (“CFTC”) announced that a federal judge entered a Preliminary Injunction Order against Defendants Patrick K. McDonnell (“McDonnell”) and CabbageTech, Corp. d/b/a Coin Drop Markets (“Coin Drop Markets”). The decision stems from the CFTC’s January 18, 2018 complaint charging Defendants McDonnell and Coin Drop Markets with fraud and misappropriation in connection with purchases and trading of the virtual currencies Bitcoin and Litecoin.
U.S. District Court Judge Finds CFTC Showed Reasonable Likelihood that Defendants McDonnell and Coin Drop Markets Will Continue to Violate the Commodity Exchange Act
Following a hearing on March 6, 2018, the federal judge found that the CFTC had shown a reasonable likelihood that the Defendants will continue to violate the Commodity Exchange Act. The Order of the United States District Court for the Eastern District of New York prohibits the Defendants from engaging in fraud in violation the Commodity Exchange Act, requires the Defendants to preserve books and records, and requires the Defendants to provide expedited discovery.
In its continuing litigation, the CFTC seeks, among other relief, a permanent injunction against future violations of federal commodities laws, restitution to defrauded customers, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, and trading bans, as charged.
CFTC Charges McDonnell and His Company, CabbageTech, Corp., d/b/a Coin Drop Markets, with Engaging in Fraudulent Virtual Currency Scheme
On January 19, 2018, the CFTC announced that on January 18, 2018, a federal civil enforcement action was filed by the CFTC in United States District Court for the Eastern District of New York against Defendants McDonnell and Coin Drop Markets, charging them with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.
An Alleged Deceptive, Fraudulent Virtual Currency Scheme
The CFTC’s January 18, 2018 complaint alleges that from approximately January 2017 to the present, McDonnell and Coin Drop Markets 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. In fact, as charged in the CFTC complaint, the supposedly expert, real-time virtual currency advice was never provided, and customers who provided funds to McDonnell and Coin Drop Markets to purchase or trade on their behalf never saw those funds again. In short, McDonnell and Coin Drop Markets used their fraudulent solicitations to obtain and then simply misappropriate customer funds.
The CFTC complaint alleges that to conceal their scheme, soon after obtaining customer funds, Defendants McDonnell and Coin Drop Markets removed the website and social media materials from the Internet and ceased communicating with Coin Drop Markets customers who lost most, if not all, of their invested funds due to the Defendants’ fraud and misappropriation. Further, the CFTC complaint alleges that neither Defendant has ever been registered with the CFTC.