James McDonald, the CFTC's Director of Enforcement, said this action is another example of the CFTCs determination to "act aggressively and assertively to root out fraud and bad actors involved in virtual currencies".
Based just outside Manhattan, in Staten Island, New York, CabbageTech operated under the name "Coin Drop Markets".
Rather than actually invest the Bitcoin, Dean and his organization were instead using the money they got from one pool of investors to pay out others, the commission told a NY district court in a filing this week. "In reality, as alleged, customers only bought into the defendants' fraudulent scheme".
The CFTC charged NY resident Patrick McDonnell and his company CabbageTech with stealing money from customers that he had solicited for providing virtual-currency trading and other services.
The CFTC Complaint explains 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. The complaint alleges he duped more than 600 investors out of $1.1 million in bitcoin.
And in some cases, potential returns of as much as a whopping 300 percent in less than a week were trumpeted, said the complaint.
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To cover their tracks, the defendants stopped communicating with customers shortly after they invested and removed web site and social media materials from the Internet, the complaint contends.
The scam ran from January of a year ago to the present, said authorities.
The lawsuit seeks restitution for the allegedly defrauded customers, the forfeiting of any benefits for violating commission regulations, cash penalties and trading bans against the defendants.
McDonnell and Dean could not be immediately reached for comment on Friday via their company websites, which appeared to have been taken down.
This case is brought in connection with the CFTC Division of Enforcement Virtual Currency Task Force, and the staff members responsible for this case are Christopher Giglio, David C. Newman, W. Derek Shakabpa, David MacGregor, Lenel Hickson Jr., and Manal M. Sultan. In addition to the CFTC's cryptocurrency enforcement efforts, the US Securities and Exchange Commission has waded into the space with the launch of a cyber crimes unit that focuses largely on virtual currencies and initial coin offerings.