CFTC Virtual Currency Enforcement Action Trends 2015–Q2 2020

Monday, December 21, 2020

Govt Abstract

As one of many regulators engaged within the cryptocurrency house, the U.S. Commodity Futures Buying and selling Fee (CFTC) has been bringing enforcement actions in opposition to digital forex market contributors, together with merchants, issuers, exchanges, and repair suppliers. From January 1, 2015, to June 30, 2020, the CFTC introduced 19 such actions.

Of the 19 actions between 2015 and Q2 2020, 14 have been litigated in U.S. district courts. The opposite 5 have been resolved inside the CFTC as orders and simultaneous settlements.

Nearly all of actions concerned an allegedly fraudulent scheme, with 14 out of the 19 involving allegedly deceptive buyers within the buying and selling of commodities.

Eight of the 19 actions concerned alleged failure to register with the CFTC, whereas 4 of the actions concerned allegedly unlawful off-exchange commodity transactions.

Of the 14 circumstances litigated in U.S. courts, most occurred within the state of New York.

As of June 30, 2020, six of the 14 litigated circumstances reached a decision.

From the date of the grievance submitting to the case decision, the common case was excellent for 292 days.

Amongst different actions filed from 2019 to 2020 Q2, the CFTC introduced 5 actions with alleged fraud that exceeded $5 million every.

The 12 months 2018 had the very best quantity
of enforcement actions by the newly
fashioned CFTC Division of Enforcement’s
Digital Foreign money Process Drive.

Digital Foreign money Enforcement Motion Overview

Of the 19 actions between 2015 and Q2 2020, 14 have been litigated in U.S. district courts. The opposite 5 have been resolved inside the CFTC as orders and simultaneous settlements.

Virtually all actions concerned transactions in Bitcoin alone or together with Litecoin. Three actions concerned different currencies, My Huge Coin, ATM Coin, and Compcoin.[1]

Of the 14 circumstances litigated in U.S. courts,
six of those have recognized protection
counsel.

Determine 1: Variety of CFTC Digital Foreign money Enforcement Actions
2015-Q2 2020

Word: Dates for CFTC orders signify the date of the ultimate order of settlement or motion, whereas dates for litigation actions signify the date of
grievance submitting.

Case Period

As of June 30, 2020, six of the 14 actions litigated in U.S. courts had reached a decision.

The common time from the date of the grievance submitting to the case decision was 292 days.

The eight actions for which no decision has been reached have a mean time excellent of 279 days as of June 30, 2020.

Between Q3 2017 and Q2 2020, the
median variety of days from grievance
to decision was 245 days.

Determine 2: Time from Grievance to Decision of CFTC Digital Foreign money Enforcement Actions
Q3 2017–Q2 2020

Supply: cftc.gov
Word: Out of 14 litigations, eight actions are excellent as of 6/30/20 and have been excluded from the calculation of common variety of days from grievance to decision. As of 6/30/20, these excellent actions had a mean time excellent of 279 days with a median time excellent of 274 days.

Venue

Of the 14 actions litigated in U.S. courts, most occurred within the state of New York, with 4 within the Southern District of New York and three within the Japanese District of New York.

The 14 litigations have been presided over by 13 completely different judges. The Honorable Sandra J. Feuerstein of the Japanese District of New York presided over two circumstances.

Nearly all of the actions litigated in
U.S. courts occurred within the state of
New York.

Determine 3: Courts and Presiding Judges of CFTC Digital Foreign money Enforcement Actions
2015–Q2 2020

United States District Courtroom

Quantity
of Actions

Actions
Resolved

Judges

Southern District of New York

P. Kevin Castel, John G. Koeltl,
Naomi Reice Buchwald, Loretta A. Preska

Japanese District of New York

Jack B. Weinstein,
Sandra J. Feuerstein (2 Circumstances)

District of Massachusetts

–

Rya W. Zobel

District of Columbia

Trevor N. McFadden

District of Nevada

–

Jennifer A. Dorsey

Northern District of Texas

Reed C. O’Connor

District of Colorado

–

Michael E. Hegarty

Center District of Florida

–

Wendy W. Berger

Southern District of Florida

–

Darrin P. Gayles

Not Relevant

–

Whole

Supply: cftc.gov
Word: Actions recognized as occurring in a “Not Relevant” court docket signify actions maintained with the CFTC (see CFTC orders).

Allegations

Nearly all of actions concerned an allegedly fraudulent scheme, with 14 out of the 19 involving allegedly deceptive buyers within the buying and selling of commodities, commodity futures contracts, or choices. Among the many fraudulent schemes, seven circumstances alleged Ponzi-like schemes.[2]

Eight of the actions concerned a commodity dealer allegedly failing to register with the CFTC, whereas 4 of the 19 actions concerned allegedly unlawful off-exchange commodity transactions.

Virtually 74 % of actions concerned
an allegedly fraudulent scheme.

Determine 4: CFTC Digital Foreign money Enforcement Actions by Sort of Allegation
2015–Q2 2020

Supply: cftc.gov
Word: Allegations within the 19 actions are taken from the “Findings of Violations” part within the CFTC orders and the “Violations of the Commodity Trade Act and Rules” part within the litigation complaints. An motion could also be related to a couple of alleged violation. The “Different Allegations” class consists of: failure to function a Commodity Pool as a separate entity; false promoting; failure to incorporate a disclaimer containing hypothetical outcomes; and false or deceptive statements to the CFTC. A commodity pool operator (CPO) is an individual engaged in a enterprise much like an funding belief or a syndicate and who solicits or accepts funds, securities, or property for the aim of buying and selling commodity futures contracts or commodity choices. The CPO both makes buying and selling choices on behalf of the pool or engages a commodity buying and selling advisor (CTA) to take action.

Latest Digital Foreign money Enforcement Actions

From 2019 by way of Q2 2020, the CFTC introduced 5 separate multimillion-dollar actions alleging fraud. These actions concerned a Bitcoin buying and selling agency and its principal; the principal of a Bitcoin escrow fund; a digital forex dealer; and the principal of cryptocurrency buying and selling and advisory corporations.[3]

The most important of those actions is CFTC v. Management-Finance Restricted and Benjamin Reynolds, introduced by the CFTC in June 2019 in opposition to the defunct UK personal restricted firm Management-Finance Restricted and its director. The CFTC grievance, filed within the Southern District of New York, alleged that Management-Finance Restricted and Reynolds operated a fraudulent scheme to misappropriate at the least 22,858.822 Bitcoin (roughly $147 million) from greater than 1,000 prospects.[4]

Throughout Q2 2020, the CFTC introduced two new actions, CFTC v. Daniel Fingerhut et al. and CFTC v. Fintech Funding Group Inc. et al.[5] These each contain allegations of fraud referring to buying and selling, amongst others.

The CFTC additionally litigated circumstances involving digital currencies it had introduced earlier than 2019.[i]

See Appendix for all CFTC digital forex enforcement actions.

The CFTC introduced 5 separate
multimillion-dollar alleged fraud
actions.

Appendix

CFTC Digital Foreign money Enforcement Actions
2015–Q2 2020

CFTC Actions and Headlines

Motion Quantity

Date of Grievance

Decision Date

Allegations

Digital Foreign money Concerned

Reported Dimension of Allegation

CFTC Enforcement
($ Tremendous/ Restitution)

Commodity Futures Buying and selling Fee Within the Matter of Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan

CFTC Orders Bitcoin Choices Buying and selling Platform Operator and Its CEO to Stop Illegally Providing Bitcoin Choices and to Stop Working a Facility for Buying and selling or Processing of Swaps with out Registering

CFTC Docket No. 15-29

9/17/15

Failure to Register as a SEF.
Unlawful Off-Trade Commodity Choices.

Bitcoin

Not Offered

Commodity Futures Buying and selling Fee Within the Matter of TeraExchange LLC

CFTC Settles with TeraExchange LLC, a Swap Execution Facility, for Failing to Implement Prohibitions on Wash Buying and selling and Prearranged Buying and selling in Bitcoin Swap

CFTC Docket No. 15-33

9/24/15

Wash Buying and selling and Pre-arranged Buying and selling.

Bitcoin

Not Offered

Commodity Futures Buying and selling Fee Within the Matter of BFXNA Inc. d/b/a Bitfinex

CFTC Orders Bitcoin Trade Bitfinex to Pay $75,000 for Providing Unlawful Off-Trade Financed Retail Commodity Transactions and Failing to Register as a Futures Fee Service provider

CFTC Docket No. 16-19

6/2/16

Unlawful Off-Trade Transactions.
Failure to Register as a FCM.

Bitcoin

Not Offered

$75,000

Commodity Futures Buying and selling Fee v. Gelfman Blueprint Inc. and Nicholas Gelfman

Federal Courtroom Orders Buying and selling Agency and CEO to Pay Extra Than $2.5 Million for Fraudulent Bitcoin Ponzi Scheme

S.D.N.Y.

1:17-cv-07181

9/21/17

10/2/18

Fraud by Misleading Machine or Contrivance.

Bitcoin

$600,000

$3,078,300

Commodity Futures Buying and selling Fee v. My Huge Coin Pay Inc., My Huge Coin Inc., Randall Crater, Mark Gillespie, John Roche, and Michael Kruger

Federal Courtroom Finds That Digital Currencies Are Commodities

D. Mass.

1:18-cv-10077

1/16/18

Fraud by Misleading Machine or Contrivance.

My Huge Coin

$6,000,000

Unresolved

Commodity Futures Buying and selling Fee v. Patrick Okay. McDonnell and CabbageTech Corp. d/b/a Coin Drop Markets

CFTC Wins Trial in opposition to Digital Foreign money Fraudster

E.D.N.Y. 1:18-cv-00361

1/18/18

8/23/18

Fraud by Misleading Machine or Contrivance.

Bitcoin
Litecoin

$457,394

$1,161,717

Commodity Futures Buying and selling Fee v. Dillon Michael Dean and the Entrepreneurs Headquarters Restricted

Federal Courtroom Orders Commodity Pool Operator and Its Principal to Pay Extra Than $1.9 Million for Bitcoin and Binary Choices Fraud Scheme

E.D.N.Y. 2:18-cv-00345

1/18/18

7/9/18

Choices Fraud
CPO Fraud.
Failure to Register as a CPO.

Bitcoin

$432,185

$1,929,977

Commodity Futures Buying and selling Fee Within the Matter of Joseph Kim; United States of America v. Joseph Kim

CFTC Orders Former Digital Foreign money Dealer to Pay Extra Than $1.1 Million for Fraudulent Bitcoin and Litecoin Scheme

CFTC Docket No. 19-02

10/29/18

Fraud by Misleading Machine or Contrivance.

Bitcoin
Litecoin

$601,000

$1,146,000

Commodity Futures Buying and selling Fee v. Blake Harrison Kantor aka Invoice Gordon, Nathan Mullins, Blue Bit Banc, Blue Bit Analytics Ltd., G. Thomas Consumer Providers, and Mercury Cove Inc.

CFTC Costs A number of People and Firms with Working a Fraudulent Scheme Involving Binary Choices and a Digital Foreign money Often known as ATM Coin

E.D.N.Y. 2:18-cv-02247

4/16/18

10/23/19

Unlawful Off-Trade Retail Swaps and Commodity Choices.
Fraud by Misleading Machine or Contrivance.
Choices Fraud.
Failure to Register as a FCM.

ATM Coin

$618,810

$4,251,738

Commodity Futures Buying and selling Fee v. 1Pool Ltd. and Patrick Brunner

International Buying and selling Platform and Its CEO to Pay $990,000 for Unlawful Bitcoin-Associated Transactions with U.S. Clients

D.D.C. 1:18-cv-02243

9/27/18

3/4/19

Unlawful Off-Trade Transactions.
Failure to Register as a FCM.
Failure to Implement Satisfactory KYC/CIP Procedures.

Bitcoin

Not Offered

$990,000

Commodity Futures Buying and selling Fee v. John Doe 1 aka Morgan Hunt dba Diamonds Buying and selling Funding Home, and John Doe 2 aka Kim Hecroft dba First Choices Buying and selling

Federal Courtroom Completely Enjoins Defendants and Orders Them to Pay Penalties and Restitution for Bitcoin Solicitation Fraud, Impersonating a CFTC Investigator, and Sending Cast CFTC Paperwork

N.D. Tex. 4:18-cv-00807

9/28/18

6/28/19

Fraud by Misleading Machine or Contrivance.

CPO Fraud.

Foreign exchange Fraud.

Bitcoin

Not Offered

$400,000

Commodity Futures Buying and selling Fee v. Management-Finance Restricted and Benjamin Reynolds

CFTC Costs Firm and Its Principal in $147 Million Fraudulent Bitcoin Buying and selling Scheme

S.D.N.Y. 1:19-cv-05631

6/17/19

Fraud by Misleading Machine or Contrivance.

Bitcoin

$147,000,000

Unresolved

Commodity Futures Buying and selling Fee v. Jon Barry Thompson

CFTC Costs Particular person with Multi-Million Greenback Bitcoin Fraud

S.D.N.Y. 1:19-cv-09052

9/30/19

Fraud by Misleading Machine or Contrivance.

Bitcoin

$7,000,000

Unresolved

Commodity Futures Buying and selling Fee v. David Gilbert Saffron a/okay/a David Gilbert and Circle Society Corp.

CFTC Costs Nevada Firm and Its Proprietor in $11 Million Cryptocurrency Fraud and Misappropriation Scheme

D. Nev. 2:19-cv-01697

9/30/19

Choices Fraud.
CPO Fraud.
Failure to Register as a CPO.
Different Allegations.

Bitcoin

$11,000,000

Unresolved

Commodity Futures Buying and selling Fee Within the Matter of XBT Corp. SARL d/b/a First World Credit score

CFTC Costs International Buying and selling Platform for Failing to Register with the CFTC

CFTC Docket No. 20-04

10/31/19

Failure to Register as a FCM.

Bitcoin

Not Offered

$100,000

Commodity Futures Buying and selling Fee v. Michael Ackerman, Q3 Holdings LLC, and Q3 I LP

CFTC Costs Firm and Its Principal in $33 Million Fraudulent Digital Asset Scheme

S.D.N.Y.

1:20-cv-01183

2/11/20

Fraud by Misleading Machine or Contrivance.

None Talked about

$33,000,000

Unresolved

Commodity Futures Buying and selling Fee v. Enterprise Capital Investments Ltd. and Breonna S. Clark

CFTC Costs Colorado Resident with Fraud in Digital Asset-Linked Ponzi Scheme

D. Col.

1:20-cv-00382

2/14/20

Fraud by Misleading Machine or Contrivance.
Fraud by a CPO and CTA.
Failure to Register as a CPO and as a CTA.

Bitcoin

$534,829

Unresolved

Commodity Futures Buying and selling Fee v. Fintech Funding Group Inc., Compcoin LLC, and Alan Friedland

CFTC Costs Florida Man and His Firms in Fraudulent Foreign exchange and Digital Asset Scheme

M.D. Fla.

6:20-cv-00652

4/16/20

Fraud by Misleading Machine or Contrivance.
CTA Fraud.
Foreign exchange Fraud.
Different Allegations.

Compcoin

$1,600,000

Unresolved

Commodity Futures Buying and selling Fee v. Daniel Fingerhut, Digital Platinum Inc., Digital Platinum Ltd, Huf Mediya Ltd (A.Okay.A. Hoof Media Ltd.), Tal Valariola, and Itay Barak

CFTC Information Costs in $20 Million Worldwide Binary Choices and Digital Asset Fraud Scheme

S.D. Fla.

1:20-cv-21887

5/5/20

Fraud by Misleading Machine or Contrivance.
CTA Fraud.
Choices Fraud.
Different Allegations.

Bitcoin, Ethereum

$20,000,000

Unresolved

Supply: cftc.gov
Word: A swap execution facility (SEF) is a buying and selling system or platform created by the Dodd-Frank Act through which a number of contributors have the power to execute or commerce swaps by accepting bids and provides made by a number of contributors within the facility or system, by way of any technique of interstate commerce. The Dodd-Frank Act imposed completely different statutory provisions on SEFs than on designated contract markets.
A commodity pool operator (CPO) is an individual engaged in a enterprise much like an funding belief or a syndicate and who solicits or accepts funds, securities, or property for the aim of buying and selling commodity futures contracts or commodity choices. The CPO both makes buying and selling choices on behalf of the pool or engages a commodity buying and selling advisor (CTA) to take action.
Futures fee retailers (FCM) are people, associations, partnerships, companies, and trusts that solicit or settle for orders for the acquisition or sale of any commodity for future supply on or topic to the foundations of any trade and that settle for fee from or prolong credit score to these whose orders are accepted.
See “Futures Glossary,” CFTC, https://www.cftc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/index.htm.

Methodology

The CFTC enforcement motion web site was used to determine actions related to monetary applied sciences. See “Enforcement Actions,” CFTC, https://www.cftc.gov/LawRegulation/Enforcement/EnforcementActions/index.htm.

Enforcement actions with a launch date between January 1, 2015, and June 30, 2020, have been reviewed for a collection of economic know-how related phrases.

Actions have been recognized as related if the enforcement motion launched by the CFTC contained phrases comparable to “bitcoin,” “blockchain,” “digital forex,” “digital forex,” or numerous different associated phrases.

Allegations within the enforcement actions have been taken from the “Findings of Violations” part within the CFTC orders and the “Violations of the Commodity Trade Act and Rules” part within the litigation complaints.

Endnotes

[1] Two circumstances contain the buying and selling of each Bitcoin and Litecoin. These are CFTC v. Patrick Okay. McDonnell et al. and CFTC within the Matter of Joseph Kim. Moreover, three actions take care of the buying and selling of My Huge Coin (CFTC v. My Huge Coin Pay Inc. et al.), ATM Coin (CFTC v. Blake Harrison Kantor et al.), and Compcoin (CFTC v. Fintech Funding Group Inc., Compcoin LLC, and Alan Friedland).

[2] The seven litigation actions alleging that defendants ran a Ponzi-like scheme are: CFTC v. Gelfman Blueprint Inc. and Nicholas Gelfman; CFTC v. My Huge Coin Pay Inc. et al.; CFTC v. Dillon Michael Dean and the Entrepreneurs Headquarters Restricted; CFTC v. Management-Finance Restricted and Benjamin Reynolds; CFTC v. David Gilbert Saffron a/okay/a David Gilbert and Circle Society Corp.; CFTC v. Michael Ackerman et al.; and CFTC v. Enterprise Capital Investments Ltd. and Breonna S. Clark.

[3] Grievance, CFTC v. Management-Finance Restricted and Benjamin Reynolds, June 17, 2019, https://www.cftc.gov/media/2111/enfcontrolbenjamincomplaint061719/obtain; Grievance, CFTC v. Jon Barry Thompson, September 30, 2019, https://www.cftc.gov/media/2591/enfjonbarrycomplaint093019/obtain; Grievance, CFTC v. David Gilbert Saffron a/okay/a David Gilbert and Circle Society Corp., September 30, 2019, https://www.cftc.gov/media/2811/enfdavidgilbertsaffroncomplaint093019/obtain; Grievance, CFTC v. Michael Ackerman, Q3 Holdings LLC, and Q3 I LP, February 11, 2020, https://www.cftc.gov/media/3406/enfmichaelackermanqcomplaint021120/obtain, and CFTC v. Daniel Fingerhut, Digital Platinum Inc., Digital Platinum Ltd., HUF Mediya Ltd. (a.okay.a. Hoof Media Ltd.), Tar Valariola, and Itay Barak, Could 5, 2020, https://www.cftc.gov/media/3846/enfdanielfingerhutcomplaint050520/obtain.

[4] CFTC v. Daniel Fingerhut, Digital Platinum Inc., Digital Platinum Ltd., HUF Mediya Ltd. (a.okay.a. Hoof Media Ltd.), Tar Valariola, and Itay Barak, Could 5, 2020, https://www.cftc.gov/media/3846/enfdanielfingerhutcomplaint050520/obtain; Grievance, CFTC v. Fintech Funding Group Inc., Compcoin LLC, and Alan Friedland, April 16, 2020, https://www.cftc.gov/media/3756/enffintechalancomplaint041620/obtain.

[5] See Order for Closing Judgment, CFTC v. Blake Harrison Kantor et al., October 23, 2019, https://www.cftc.gov/media/2931/enfblakeharrisonororder102319/obtain. See additionally Consent Order for Everlasting Injunction, CFTC v. 1Pool Ltd. and Patrick Brunner, March 4, 2019, https://www.cftc.gov/websites/default/information/2019-03/enfconsentorder1poolltdandbrunnertrustcompanycomplex.pdf

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