Securities Regulation Daily CFTC charges fraudsters with stealing over $6 million in virtual currency Ponzi scheme
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Wednesday, January 24, 2018

CFTC charges fraudsters with stealing over $6 million in virtual currency Ponzi scheme

By Brad Rosen, J.D.

The CFTC has announced an enforcement action in the U.S. District Court for the District of Massachusetts, filed under seal on January 16, 2018, charging commodity fraud and misappropriation related to the ongoing solicitation of customers for a virtual currency known as My Big Coin (MBC). The CFTC charged defendants Randall Crater of East Hampton, New York, Mark Gillespie of Hartland, Michigan, and My Big Coin Pay, Inc., a corporation based in Las Vegas, Nevada, with misappropriating over $6 million from at least 28 customers by transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods (CFTC v. My Big Coin Pay, Inc., January 16, 2018).

Specifically, the CFTC complaint alleged that from at least January 2014 through January 2018, the defendants fraudulently solicited potential and existing MBC customers throughout the United States by making false and misleading claims and omissions about MBC’s value, usage, and trade status, and that MBC was backed by gold.

On January 16, 2018, the district court also issued a restraining order, under seal as well, which froze the defendants’ assets. The order also froze the assets of relief defendants Kimberly Renee Benge, Kimberly Renee Benge d/b/a Greyshore Advertisement a/k/a Greyshore Advertiset, Barbara Crater Meeks, Erica Crater, Greyshore, LLC, and Greyshore Technology, LLC for allegedly receiving customer funds without providing any legitimate services to clients and without any interest or entitlement to such customer funds. The court’s restraining order also prohibits the defendants and relief defendants from destroying or altering books and records.

Core misrepresentations made to customers. This case rounds out a trio of matters that the Commission filed on January 16, 2018 related to virtual currency fraud. However, the instant case appears to involve the most egregious conduct and greatest customer losses relative to the other two matters. As alleged in the complaint, some of the core misrepresentations made to MBC customers included the following:

  • That MBC was actively being traded on several currency exchanges, including the MBC Exchange website, when in fact it was not;
  • Reports regarding the MBC daily trading price when, in fact, no price existed because MBC was not trading;
  • That MBC was backed by gold, when in fact it was not; and,
  • That MBC had partnered with MasterCard with the promise that MBC could be used anywhere MasterCard was accepted, when in fact no such partnership existed and MBC could not be used anywhere MasterCard was accepted.

Other aspects of the scheme. The CFTC’s complaint also alleges that all of the defendants’ claimed trading results were illusory and that any payouts made to customers were derived from funds fraudulently obtained from other customers in the manner of a Ponzi scheme. As customers began to raise questions about their MBC accounts, defendants attempted to further conceal their fraud by issuing additional coins to customers and falsely representing that they had secured a deal with another exchange to trade MBC.

The CFTC also asserted that the defendants misappropriated virtually all of the approximately $6 million they solicited from customers and used the proceeds to purchase a home, antiques, fine art, jewelry, luxury goods, furniture, interior decorating and other home improvement services, travel, and entertainment.

CFTC’s Director of Enforcement comments. Director of Enforcement James McDonald, stated: "As this case shows, the CFTC is actively policing the virtual currency markets and will vigorously enforce the anti-fraud provisions of the Commodity Exchange Act. In addition to harming customers, fraud in connection with virtual currencies inhibits potentially market-enhancing developments in this area."

This case was brought in connection with the CFTC Division of Enforcement’s Virtual Currency Task Force. In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws, as charged. The CFTC’s motion for preliminary injunction is set for hearing on January 25, 2018.

The case is No. 18-100777-RWZ.

MainStory: TopStory CommodityFutures Enforcement FraudManipulation MassachusettsNews

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