The CFTC filed a federal complaint and obtained a restraining order against a corporation and two individual defendants for misappropriating over $6 million in customer funds in connection with an offering of a virtual currency.
According to the CFTC, Randall Crater, Mark Gillespie and their company, My Big Coin Pay, Inc. (collectively, "Defendants"), solicited customer investments for My Big Coin ("MBC"), a virtual currency. Defendants allegedly made misrepresentations through various media and digital media channels concerning the trading status, prices, uses and value of MBC. The CFTC contends that the Defendants produced fraudulent statements concerning the price of MBC, and misrepresented the quantities of MBC that investors owned. In addition, the CFTC said that the Defendants used funds to make illusory Ponzi-style payouts to customers, and misappropriated other investments for their personal use.
The U.S. District Court for the District of Massachusetts issued a restraining order freezing the assets of the Defendants and others accused of receiving payments from the company without providing any actual services to clients.
The Defendants were charged with violating CEA Section 6(c)(1) and CFTC Rule 180.1(a).
CFTC Enforcement Director James McDonald said that such fraudulent schemes "inhibit[] potentially market-enhancing developments" in the area of virtual currency, and cautioned investors to "engage in appropriate diligence before purchasing virtual currencies."
Commentary/ Bob Zwirb
This case illustrates the enlargement of the CFTC's enforcement authority by Dodd-Frank. Prior to Dodd-Frank, the CFTC could not have gone after fraudulent conduct involving the sale of coins (virtual or otherwise) in the cash or spot market, because, as a federal court observed, "the statute 'limits its coverage and the CFTC's jurisdiction to futures. It does not cover the spot market.'" Not even the so-called "Zelener fix," adopted in connection with the CFTC Reauthorization Act of 2008, would have helped, because that only applied to so-called rolling spots, not to the sale of true spots. To get around this legal roadblock, Dodd-Frank provided the CFTC with new anti-fraud authority, which it relies upon here (and in another recent enforcement action involving virtual currency), to go after fraud in connection with any "contract of sale of any commodity in interstate commerce." Thus, while the CFTC does not have regulatory jurisdiction over the sale of virtual coins unconnected with futures or swaps, it now has enforcement authority over such instruments.
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