Despite still being in its infancy, the crypto industry has seen its fair share of Ponzi schemes and scams. The anonymous and untraceable nature of cryptocurrencies is often misused to commit cyber thefts and various acts of fraud. Perhaps the biggest flaw of this industry is the lack of awareness among the masses.
Scam exchanges are also of rising concern. Over the decade that cryptocurrencies have existed, many exchanges have come and gone. While some are victims of bad circumstances, others are often a planned exit scam. Reports have stated that close to $3.1 billion was lost to exit scams, in 2019 alone.
The most recent case is that of a company named Fintech Investment Group, Inc and Compcoin LLC, defrauding victims of more than $1.6 million. The Commodity Futures Trading Commission (CFTC) has charged a Florida resident Alan Friedland, the alleged mastermind behind the two companies in an alleged leveraged foreign-exchange scam from 2016 to 2018.
According to the complaint, the defendant had published “untrue and materially misleading” press materials for the digital asset Compcoin and claimed that holders of Compcoin would have access to ART, an algorithm that promises high returns in foreign exchange trading.
Compcoin investors were further told that ART’s profit potential was based on eight years of testing. The CFTC said that Compcoin blockchain was behind schedule and had not launched, while the token holders never generated any income from trading forex. Sadly, investors were holding a good-for-nothing cryptocurrency.
Defendant knew the consequences
Furthermore, the complaint alleges that Friedland was aware that he would need the approval from the National Futures Association (NFA) in order to use ART, but he went on to promote that ART and Compcoin were “ready for release on the open market.” The filing read:
“Prior to the purchase of Compcoin by anyone, defendants knew that Compcoin could not be used by customers to gain access to ART because Fintech had not been approved to advise customers as to trading forex using ART.”
The filing also added that NFA had notified the defendant in writing:
“The NFA advised defendant Fintech in writing that the forex trading disclosure documents, which Fintech had submitted to the NFA for approval, were deficient and could not be used to solicit customers for forex trading using ART until acceptable disclosures were filed with, approved and accepted by the NFA.”
As of now, the regulator is seeking restitution, civil penalties, a permanent registration ban, and a permanent injunction against further CFTC violations.