The U.S. Commodity Futures Trading Commission today announced two new enforcement actions related to alleged fraud in the cryptocurrency industry. The commission filed actions against US-based Cabbage Tech, Corp. DBA Coin Drops Market (CDM) and The Entrepreneurs Headquarters Limited, which is registered in the UK. Both entities are accused of various types of fraud involving digital currency tokens.
After announcing the two actions, the Enforcement Directors of both the CFTC and the Securities and Exchange Commission (SEC) issued a joint statement:
“When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments.”
The complaint against CDM accuses the company of fraud and misappropriation. The company allegedly concocted a scheme that convinced customers to send it both fiat and digital currencies based on a promise of trading returns as high as 300% in a single week. According to the CFTC, the company failed to follow through on its promise to provide trading advice, and the customers lost all their money.
CFTC’s case against Entrepreneurs Headquarters Limited is also focused on fraudulent activity. That complaint alleges that the company convinced investors to send it Bitcoin, misrepresented its use of those assets, and engaged in a series of Ponzi-type payments. Its owner, Dillon Michael Dean, is also accused of failing to properly register the company with the commission.
Both complaints were filed by the commission’s new Division of Enforcement Virtual Currency Task Force, and are part of an increased effort by regulators to rein in some of the industry’s more questionable practices and bad actors.
The joint statement from the two regulatory bodies reflects the U.S. government’s new focus on digital currencies within the context of existing securities and commodities rules. That new focus has been welcomed by industry leaders and outside observers alike.
Some, like DNotes Global Inc. co-founder and CEO Alan Yong, have recently expressed concerns about some of the industry’s excesses. In a recent op-ed, Yong expressed concern about the speculative nature of the digital currency markets, the activities of some bad actors who ignore securities laws, and regulatory bodies’ unfamiliarity with the technology:
“Any or all of those factors could lead lawmakers and bureaucrats to over-regulate the industry, effectively stifling innovation. In my opinion, that would be tragic.”
“For while the digital currency industry is currently experiencing tremendous growing pains, that doesn’t change the fact that we are now witnessing the greatest technological revolution since the dawning of the internet age – with an opportunity for the world to experience the same type of explosive increases in jobs and wealth creation.”
Yong’s company recently announced that it will forgo the popular initial coin offering (ICO) option for its funding efforts, opting instead to utilize a Reg. A+ Mini-IPO to ensure compliance with existing SEC regulations.