The Commodity Futures Trading Commission (CFTC) has announced that it has filed a federal civil enforcement action in the U.S. District Court for the Eastern District of New York against Defendants Patrick K. McDonnell, of Staten Island, New York, and CabbageTech, Corp., doing business as Coin Drop Markets (CDM), a New York corporation, charging them with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.
James McDonald, the CFTC’s Director of Enforcement, commented:
This action is among the latest examples of the CFTC’s continuing commitment to act aggressively and assertively to root out fraud and bad actors involved in virtual currencies. As 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. We will continue to work hard to identify and remove bad actors from these markets.
Defendants Allegedly Engaged in a Deceptive, Fraudulent Virtual Currency Scheme
The CFTC Complaint alleges that from approximately January 2017 to the present, McDonnell and CDM engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to CDM, 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 CDM to purchase or trade on their behalf never saw those funds again. In short, McDonnell and CDM used their fraudulent solicitations to obtain and then simply misappropriate customer funds.
The CFTC Complaint further alleges that to conceal their scheme, soon after obtaining customer funds, Defendants removed the website and social media materials from the Internet and ceased communicating with CDM Customers, who lost most if not all of their invested funds due to Defendants’ fraud and misappropriation. The CFTC Complaint also alleges that neither Defendant has ever been registered with the CFTC in any capacity.
In its continuing civil litigation, the CFTC seeks, among other relief, restitution to defrauded customers, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.