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As the value of cryptocurrency rises so does the number of reported frauds but that shouldn’t taint the cryptocurrency concept

On the 18th January the U.S. Commodity Futures Trading Commission (CFTC) charged 3 companies for engaging in fraudulent cryptocurrency schemes. They allege all 3 have defrauded their customers and broken Federal commodity trading rules.

Before the weekend the CFTC published the details of the first 2 of these 3 cases on their website.

The first case focused on the UK-registered company - the Entrepreneurs Headquarters Ltd. – of US resident Michael Dean. According to reports between April 2017 and January 2018 Dean’s company courted $1.1 million worth of bitcoin from over 600 people by promising they would convert them into currency and deliver a high return on the back of Dean’s “strong” options trading skills. 

However, the CFTC’s case claims the Entrepreneurs Headquarters Ltd. never made any trades. Instead they simply withdrew over $1 million from their customers’ funds before launching a new project, Real Trade Profits.

Having identified the company had failed to officially register themselves as a Commodity Pool Operator (CPO) the CFTC has made a formal statement saying they have charged the Entrepreneurs Headquarters Ltd. for “engaging in a fraudulent scheme to solicit bitcoin from members of the public” and have been clear they view their activities as a classic Ponzi scheme.

The second case concerns Cabbage Tech. Corp. who traded publicly under the name Coin Drop Markets (CDM). 

Again the CFTC has charged them with fraud and misappropriation “in connection with purchases and trading of bitcoin and litecoin” adding neither the company’s owner Patrick McDonnell nor the company were ever officially registered.

The CFTC Complaint claims that over the last 12 months CDM ran a fraudulent virtual currency scheme designed to persuade clients to send them both traditional and cryptocurrencies in exchange for trading tips and for CDM to use to purchase and/or trade cryptocurrencies on their behalf. 

The Commission is confident no advice was ever provided and that clients never saw the funds they’d invested again after the company’s website and social media feeds disappeared which left no means for those clients to communicate with CDM.

While the third case remains, in the CFTC’s words, “under seal” all 3 cases have come hot on the heels of reports involving yet another major fraud involving cryptocurrency trading.

When the owners of Bitconnect (BCC) shut down their operations last Wednesday their decision immediately forced the value of their tokens to drop from $290 to $8. Incredibly however trading in BCC continues and, due to the announcement they are about to launch an ICO, the price has remarkably started to climb again.

Their planned ICO isn’t a new revelation. The Bitconnect website started accepting contributions on January 10th but when the main site closed a week later, it was expected the ICO site - Bitconnect X (BCCX) - would do the same within days. Incredibly not only is the site still live, it is being flooded with new investment and, having been the world’s worst performing cryptocurrency on January 17th, it became the best performing by the end of January 18th after its value rose by 410% in 24 hours. Since then it’s been reported more than $18 million of BCC has been traded.

This has all been made even more sinister by the fact only BCC can be used to purchase the BCCX being launched by the ICO.

As each BCCX costs $50 and each of the original BCC coins cost up to $290 per coin, the crash has forced investors to exchange their original coins for the new ones at a fraction of the price. It seems that, in an unprecedented display of bare faced cheek, those behind the scheme have not only pocketed the proceeds from the first round of trading but set themselves up to promote a second round using social media to keep pumping out PR as if the first crash had never happened.

To put the potential rewards into context, if Bitconnectx.co sells its target of 11.76 million BCCX, they will earn it $588m. Add that to the $145m in coins they also plan to retain and they could very well clear $733m while their victims are left counting the cost of their decision to invest … twice.

However although these reports are concerning Richard Howlett, a partner at Selachii and the head of our Fintech and Cryptocurrency team, argues this is not a blemish on the concept of cryptocurrency. Instead it is yet another reminder of just how much the industry needs robust international regulation:

“Bitconnect have now shown their true colours. They’ve finally closed their doors, owing millions to their thousands of clients, many of whom could see this coming and have been voicing their suspicions on internet forums for some time. While the actions of the owners are as illegal as they are reprehensible, to me all of these scams are yet more very loud and very public arguments for introducing an officially recognised regulatory body for the industry.”

Richard then went on to explain exactly why a regulatory body is so vital:

“Without regulation I fear that these types of frauds will keep happening and keep getting bigger. I could name even more cases – although I obviously can’t – and for one of those, we have already been instructed to serve with a winding up petition on two separate occasions. I have to say the increasing regularity of these scams is causing me a great deal of concern. However, what concerns me more is that something as amazing as cryptocurrency is being ruined by crooks looking to make serious money then run away into the sunset because they know that while there is no regulation, there is less chance they will be pursued and prosecuted.”

If you are thinking about investing in cryptocurrency, you need to make sure you know exactly what to look for so you don’t become a victim of the next major international cryptocurrency fraud. If you’d like to discuss how best to protect yourself call us today on 020 7792 5649 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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