A major regulatory body in the US has said it will file a complaint against a supposed trading and investment firm.
The US-based Commodity Futures Trading Commission, or CFTC, said it would charge the British firm Control-Finance Limited and its principal, British resident Benjamin Reynolds, with fraudulent accumulation of Bitcoin.
According to a post on its website, the CFTC believes that Reynolds operated a website over a period of time beginning on the 1st May until 31st October.
This website, along with a group of related social media accounts, allegedly fuelled speculation about the price of Bitcoin and then encouraged people to transfer ownership of newly-bought cryptocurrency to the owner of the website.
“The defendants induced customers into transferring Bitcoin to them by falsely representing that they employed expert virtual currency traders who earned guaranteed daily trading profits on all Bitcoin deposits”, the CFTC’s statement read.
The CFTC claims that Reynolds misappropriated around 22,858.822 Bitcoin, which at the time of his alleged actions were worth at least $147 million.
He supposedly did this from over 1,000 people. His firm, Control-Finance, is now out of business.
In his alleged attempts at fraud, Reynolds supposedly claimed that there was a return of 1.5% per day possible on all trades placed.
He also claimed that the overall monthly profits would be 45%. He claimed that the firm used risk diversification techniques to reduce the chance of problems, although that appears to be untrue.
He also said that his investment vehicle was a “safe haven” from the wider ups and downs of the Bitcoin market.
Ultimately, Reynolds allegedly never placed any trades and did not derive any profit for his customers.
It is also alleged that Reynolds operated what is known as an “affiliate scheme” in order to encourage further sign-ups to his scheme.
The scheme supposedly tried to recruit others to refer new customers. New customers were asked to click through and deposit Bitcoin, at which point the referrer received what they were told was some extra Bitcoin credit. In reality, this was not real credit.
“The defendants marketed and concealed their fraud through an elaborate pyramid scheme they called the Control-Finance ‘Affiliate Program’”, the CFTC said in its statement.
“Through the Affiliate Program, the defendants fraudulently promised to pay, in the form of Bitcoin, escalating referral profits, rewards, and bonuses to “Affiliates”, or persons who referred new customers to Defendants.”
According to the CFTC’s Director of Enforcement, James McDonald, a warning to potential investors is necessary.
“The CFTC will continue to vigorously police the Bitcoin markets, including fraudulent trading activity as alleged in the Complaint here”, he said.
“Fraud in these markets not only harms customers, but if left unchecked, it could also hinder innovation. We caution potential virtual currency customers, once again, that they should engage in appropriate diligence before purchasing or trading virtual currencies.”
The CFTC’s case is a civil one, meaning that it is looking for a number of punishments including civil monetary penalties, disgorgement of ill-gotten gains, “permanent injunctions against further violations of the federal commodity laws” and more.
In its statement, the CFTC specifically thanked the British Columbia Securities Commission for providing assistance.
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