Three individuals (the "Defendants") settled CFTC charges for their part in a fraudulent scheme that involved offering customers "an opportunity to profit from speculative trading that was based upon price fluctuations in Bitcoin."
In separate orders filed in the U.S. District Court for the Southern District of Texas (see here and here), the CFTC found that the Defendants falsely represented in their marketing materials that:
- the business had more than "75 master traders" employed, with years of cryptocurrency trading experience;
- customers' capital was being continuously traded in real-time by the traders and through "cutting edge trading robots 24 hours a day, 7 days a week";
- the business's trading software and monitoring system traded automatically and without risk for customers; and
- customer earnings would increase based on their principal deposit amount and customers would receive bonuses for referring others to the business.
In its investigation, the CFTC uncovered that (i) the business employed no traders and did not use any trading robots and (ii) some of the business' customers did not receive daily earnings or guaranteed referral bonuses. The CFTC discerned that the Defendants were able to cover up their fraudulent actions by "causing misleading trading statements to be posted online" which did not reflect the Bitcoin trading purportedly being undertaken by the Defendants.
As a result, the CFTC determined that the Defendants violated Section 6(c)(1) ("Prohibition against Manipulation") of the CEA and CFTC Rule 180.1(a) ("Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices").
To settle the charges (i) the Defendants agreed to pay $989,550 in restitution to customers impacted by the fraudulent scheme, (ii) one of the Defendants agreed to pay a $400,000 civil money penalty, (iii) the other two Defendants each agreed to pay a $180,000 civil money penalty, and (iv) the Defendants were permanently banned from registering with the CFTC and from trading commodity interests. The CFTC stated that there is pending litigation against a related defendant.
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