The unclear regulations that have always been a drawback for the crypto industry have also been acting as an opportunity for scammers and fraudsters to prey on the unaware. Last year, the Cryptocurrency Anti-Money Laundering (AML) report reveals that the first six months have seen $4.26 billion lost to thefts, scams, and Ponzi schemes. This has forced regulators to keep a watchful eye on the industry and crack down on illegal operations.
CFTC intercepts a Ponzi scheme
Recently, The Commodity Futures Trading Commission (CFTC) has charged a Colorado native with an accusation of fraud. Denver local Breonna Clark, along with Colorado-based Venture Capital Investments Ltd., face civil action from the CFTC for defrauding investors, the agency announced in a statement on Feb. 14.
The CFTC claims that Clark and Venture Capital Investments operated a fake forex and cryptocurrency trading pool. Using false financial credentials and falsely stated experience, the accused managed to lure close to seventy-two people by promising them monetary gains in crypto.
The volatility of cryptocurrencies has often seen these decentralized assets surpass traditional alternatives in terms of performance and that tends to plant the idea of quick and easy gains within the minds of the investors. Bitcoin was the best performer of the year, gaining 95% over the year with volatility ranging from $3,500 to $13,500. It surpassed Gold that rose 19%, the S&P 500 29% and silver 15.6%. On the 1st of January 2019, Bitcoin was trading at $3776 and it closed above $7200 on December 31st.
The accused managed to gather $534,829 in total, the CFTC’s allegations stated. Apart from defrauding investors, the defendants also allegedly provided participants with fake documents showing trading gains and progress. Rather than putting investors’ money toward trading, Clark and Venture Capital Investments spent $418,000 of the collected money on unrelated purchases, including a luxury car, as well as sent out “Ponzi-type payments” to some of the entities involved in the trading pool.
The statement noted:
“In its litigation against the defendants, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act, as charged.”
The SEC plays its part
The SEC has also been very active regarding cryptocurrencies especially because there have been many unregistered token sales that turned out to be scams. While many consider this as regulatory hostility towards cryptocurrency, the multiple acts of fraud caused in the industry give the regulators a solid reason to crack down on cryptocurrencies and ICOs.
The most recent victim of SEC’s crackdown is Eran Eyal, the founder of Shopin. Eyal was accused of conducting a fraudulent ICO that raised more than $42 million between August 2017 and April 2018.
In a more recent incident, the SEC charged an Ohio man for allegedly defrauding 150 investors in a cryptocurrency trading scheme. The SEC’s complaint accuses Michael W. Ackerman of raising at least $33 million in violation of anti-fraud provisions for federal securities laws.