A New York resident who purportedly operated a Bitcoin trading firm was hit with a $1.1 million fine to settle criminal charges in an enforcement action filed in January by the CFTC against a cryptocurrency-related fraud.
The court order, entered by Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York, finds that Staten Island-based CabbageTech, doing business as Coin Drop Markets (CDM), and its principal, Patrick McDonnell, were running a fraudulent scheme that involved buying and trading the cryptocurrencies Bitcoin and Litecoin.
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The CFTC alleges that beginning in January 2017 and continuing through July 2017, the defendants conspired to defraud investors by enticing them to send their money to CabbageTech, in exchange for trading recommendations and digital coins purchases under McDonnell’s direction.
Nearly all of the pool money was lost, according to the complaint that accuses the defendants of fraud, misappropriation, registration violations and issuing false statements.
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In connection with the promotion of their pool, McDonnell made a series of materially false claims to lure investors interested in digital coins trading. The claim was made that pool participants could get extraordinary investment returns, up to 300% in less than a week.
Instead of using the investors’ monies in trading, the fraudsters misappropriated all of the participants’ funds, then removed the website and social media materials and ceased communicating with customers.
Separately on the same day, the CFTC accused a Colorado businessman and his UK-registered company of violating trading regulations and defrauding at least 600 customers of more than $1.1 million.
As also alleged, he used some new investors’ funds to pay back other investors in a Ponzi-like fashion, so that they would invest or refer additional money, thereby allowing the scheme to continue for a longer period of time.