Federal Watchdog Groups Begin Scrutiny of Crypto Currency Markets

A bitcoin mining facility, where high powered computers virtually mine for valuable bitcoin currency.

The Securities and Exchange Commission(SEC) and Commodities Futures Trading Commission(CFTA) released a joint statement last Friday emphasizing their commitment to take action against fraud in both cryptocurrencies and the initial coin offering market, Business Insider reported.

“When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments”, the joint statement said.

This announcement was made a day after the CFTC brought two lawsuits against allegedly fraudulent cryptocurrency investment schemes yesterday. The cases, both filed in the U.S. federal court in the New York Eastern District, are the latest move from the country’s derivatives regulator in bringing closer scrutiny over activities involving cryptocurrencies, which the agency regulates as commodities.

In one case, the CFTC alleged that Dillon Michael Dean from Colorado and his company, Entrepreneurs Headquarters Limited, collected more than $1.1 million in bitcoin from over 600 people as part of a pooled investment vehicle for trading commodity interests. The pool was said to invest in binary options contracts, according to the complaint. However, the CFTC alleged that the defendants misappropriated the funds.

In a second case, Patrick Kerry McDonnell from New York and the company CabbageTech, are being sued by the CFTC for allegedly running off with customers’ digital assets. According to the complaint, the agency alleged that McDonnell branded himself as a cryptocurrency investment expert with trading advice that could result in highly attractive returns on investment. For example, the complaint said that, in one case, McDonnell allegedly claimed a return of 300 percent with his trading tips. Cabbage Tech allegedly cut off communications with clients afterwards and “misappropriated the funds”.

The enforcement actions are the first by the CFTC since it allowed the launch of bitcoin futures in December, Reuters reported.

Fears of a regulatory crackdown on the cryptocurrency market in South Korea and China sent markets into a roller coaster ride of dramatic drops and subsequent recouping over the last month. In recent months Bitcoin has risen as high as $20,000 a coin before dropping to as low as $9000, currently the crytocurrenty is hovering around $12,000 a coin.

By: Victor Hazan

 

 

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