Trader Jailed and Fined Over $1 Million for Bitcoin and Litecoin Fraud Scheme

The U.S. Commodity Futures Trading Commission (CFTC) issued a press release on Friday, November 9, 2018, stating that it had fined Arizona resident Joseph Kim for perpetrating a fraudulent cryptocurrency trading scheme against his former employer and other investors. The same day, a District Court in the Northern District of Illinois sentenced Kim to 15 months on wire fraud charges.

Misappropriating Employer’s Funds

According to the release, Kim had misappropriated his employer’s funds between September and November 2017. Kim, who was employed by a Chicago-based trading firm at the time, had transferred the company’s tokens from the cryptocurrency exchange where they were kept into his wallet address.

When questioned about the illegal transfers, Kim falsely stated that the platform’s security issues were the reason why the tokens were moved. The firm discovered the misappropriation of funds in November 2017; by then, Kim had lost approximately $601,000 of the company’s funds. The company subsequently fired him.

Defrauding Investors

Kim then went out to solicit investment funds from unsuspecting investors, telling them he had left his former employer willingly to start a company of his own. After falsely informing investors he had a “low-risk virtual currency arbitrage strategy,” he got at least five investors, who gave him approximately $545,000 to invest in the crypto market.

Kim made poor investment decisions, leading to a total wipeout of his clients’ investments. Again, he concealed the losses, going so far as to falsify account statements sent to investors, which reflected profits where there were none.

Fines

The CFTC fined Kim $1.146 million, to be paid as restitution to his former employer and his investors. The agency has also imposed on Kim a permanent trading and registration ban for crypto trading and for soliciting of funds.

Director of Enforcement James McDonald calls the order issued against Kim evidence of the agency’s “commitment to actively police the virtual currency markets and protect the public interest.”

The U.S. Securities and Exchange Commission (SEC) has also been busy ramping up its enforcement against fraudulent schemes in the industry.

Just last week, the SEC charged crypto exchange EtherDelta with running an “unregistered national securities exchange.”

The agency also went after TokenLot LLC and Crypto Asset Management LP for registration failures in September 2018.

Its brokerage arm, the Financial Industry Regulatory Authority (FINRA), had a taste of the crypto industry, when it went after publicly traded company Rocky Mountain Ayre Inc. (RMTN) and its CEO, Timothy Tilton Ayre, charging him with the “unlawful distribution of an unregistered security.”