Another Virtual Currency Player Charged with Fraud by CFTC

On the heels of two enforcement actions announced in the first weeks of January, the U.S. Commodity Futures Trading Commission announced fraud charges against yet another company operating in the virtual currency space. The enforcement action alleges that Las Vegas-based My Big Coin Pay Inc., a virtual currency wallet and platform, misappropriated more than $6 million from its customers for “personal expenses and the purchase of luxury goods,” including a home, jewelry and fine art. “As a result, MBC customers have lost most, if not all, of their funds due to defendants' fraud and misappropriation,” the commission's Jan. 16 complaint filed in Massachusetts federal court reads. The complaint was shared publicly by the CFTC after a period of being under seal.

My Big Coin allegedly misled customers by telling them the company was being actively traded on multiple currency exchanges and by falsifying trading price reports. The company told customers it was backed by gold, which the CFTC says it was not. “In reality, the supposed trading results were illusory, and any payouts of funds to MBC customers were derived from funds fraudulently obtained from other MBC customers in the manner of a Ponzi scheme,” the lawsuit states. My Big Coin also lied to customers about a partnership with Mastercard Inc. that would allow customers to use the currency wherever Mastercard is accepted, according to the suit.

A representative from My Big Coin did not immediately respond for comment on the allegations.

The CFTC's complaint and a restraining order were issued by a judge from the U.S. District Court for the District of Massachusetts. The order froze the assets of the company and its executives, Randall Crater of East Hampton, NY and Mark Gillespie of Hartland, MI.

“As this case shows, the CFTC is actively policing the virtual currency markets and will vigorously enforce the antifraud provisions of the Commodity Exchange Act,” Director of Enforcement James McDonald said in a press release. “In addition to harming customers, fraud in connection with virtual currencies inhibits potentially market-enhancing developments in this area.” He cautioned potential customers in the red-hot virtual currency market to “engage in appropriate diligence” before buying in.

The year is young, but the order makes the third action the CFTC has taken in 2018 against a company running a virtual currency scheme.

Dina Ellis Rochkind, of counsel at Paul Hastings, who is not involved in this case, says she expects to see more virtual currency enforcement actions coming from both the CFTC and the U.S. Securities and Exchange Commission. “They are very concerned about retail investors who are active in the crypto space,” Rochkind said in an email. “They are also concerned about a potential market crash. The plaintiff's bar has also become more active. That being said, I believe the SEC and CFTC are supporters of crypto, blockchain and ICOs that are operating legally.”

She added: “From a big picture standpoint, Treasury, FinCen and The Hill are becoming more active on this issue because of concerns about money laundering and terrorist financing. … I think agencies like Treasury, Homeland Security, etc. are a greater threat to cryptocurrencies than the SEC and CFTC who are looking to protect investors while legitimizing the industry.”

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Stephanie Forshee writes for the New York Law Journal, an ALM sibling of this newsletter..