Crypto fraudsters hit by fines after US court sides with regulator

Nigel Frith

A court in the US state of New York has today issued a significant judgement against a cryptocurrency fraudster who ran a fake firm from a “dusty and grimy” basement.

Patrick K. McDonnell, who ran a firm known variously as CabbageTech or Coin Drop Markets, has been hit with a civil monetary penalty of around $870,000. He will also be required to pay restitution of just over $290,000.

The case has been complex, and it has involved lies told by McDonnell on several different fronts.

Part of the illusion of CabbageTech was largely cosmetic in nature. McDonnell told investors, for example, that the firm had offices in the major New York financial district of Wall Street.

He told them that he was the firm’s CTO, or Chief Technology Officer, and that he had an assistant named Michelle.

However, no secretary was employed by the firm and the firm’s headquarters were in fact what court records described as a “dusty and grimy” basement in the New York borough of Staten Island, just over the river from Manhattan.

Yet, there was a serious financial side to the fraud which was exposed in court as well.

Traders who invested with CabbageTech would pay up believing that this would gain them access to cryptocurrencies, and that it would also entitle them to high-level trading advice from a group of fictitious advisors who McDonnell claimed work there.

However, the funds were simply diverted away by McDonnell.

Last year, McDonnell said that the website he operated had been accessed fraudulently. He then closed it down entirely, making it impossible for customers to access it any longer.

The case came to trial after charges were levied against him in January of this year. The CFTC charged him with running “a deceptive and fraudulent virtual currency scheme” for the specific purposes of “virtual currency purchases and trading… misappropriated [investor] funds” and “for purported virtual currency trading advice”.

McDonnell complicated the proceedings, which took place at the New York Eastern District Court, by not appearing every day.

He also did not have a lawyer, making typical proceedings a little more difficult.

The case is particularly significant, however, because a major American regulator had to work hard to show the court that it had jurisdiction over cryptocurrency.

The case was brought by the Commodity Futures Trading Commission (CFTC), and it had to show the court why it considered cryptocurrencies to fall under its remit.

Court documents reveal that the court considered the CFTC to be an appropriate regulator in this circumstance and that cryptocurrency could be seen as a commodity.

This could well have large ramifications for the future regulation of crypto. At present, there is a raging debate over what legal format most cryptocurrencies take and, consequently, which regulator if any has the power to monitor them.

The cryptocurrency Ripple, for example, is considered by some to have a number of the qualities of a security, but there is little agreement at the moment over what the status of others might be.


Nigel Frith

Latest news

Olympic Legend Usain Bolt Lost $12m in Savings Scam
Usain Bolt loses $12m in an alleged investment scam Jamaican officials and the FBI are investigating investment manager Stocks and Securities Ltd Others are feared caught by the scheme Jamaican Olympic sprinter Usain Bolt has had a $12m savings and investment account he set up for his retirement wiped out. Read more
Phoney Pastors Caught Running $28m Church-Based Ponzi Scheme
Churchgoers targeted by scammers posing as pastors A total of $28m fraudulently taken from largely immigrant community Promises of ‘financial freedom through God’ undone by the fact the project was a massive Ponzi scheme Deception, distraction, and abuse of trust are standard tools of fraudsters. Read more

Safest Forex Brokers 2023

Broker Info Best In Customer Satisfaction Score
#1 AvaTrade LogoYour capital is at risk Founded: 2006 Globally regulated broker
Number One Broker
BEST CUSTOMER SUPPORT Visit broker
4.9
#2 BlackBull Markets LogoYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
4.8
#3 73 % of retail CFD accounts lose money Founded: 2014 Global Forex & CFD Broker
Number One Broker
Best Trading Conditions Visit broker
4.9
#4 Forex Broker eToro Logo67% of CFD traders lose Founded: 2007 Global CFD & FX Broker
Number One Broker
ALL-INCLUSIVE TRADING PLATFORM Visit broker
4.9
#5 Plus500 Logo79 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Founded: 2008 Global CFD Provider
Number One Broker
Best Trading App Visit broker
5

    Forex Fraud Certified Brokers

    IC Markets Logo
    City Index Logo
    LegacyFX Small Logo
    AvaTrade logo
    skilling logo
    HYCM Logo
    OctaFX Logo
    BlackBull Markets Logo
    IQ Option Logo
    Forex.com Logo
    ATFX Logo
    XM Logo
    Exness Small Logo