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Regulation and Compliance > Federal Regulation > SEC

FTC Shuts Down Promoters of Deceptive Cryptocurrency Schemes: Enforcement

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At the request of the Federal Trade Commission, a federal court has halted the activities of four individuals who allegedly promoted deceptive money-making schemes involving cryptocurrencies.

These schemes falsely promised that participants could earn large returns by paying cryptocurrency such as Bitcoin or Litecoin to enroll in the schemes.

“This case shows that scammers always find new ways to market old schemes, which is why the FTC will remain vigilant regardless of the platform or currency used,” said Tom Pahl, acting director of the FTC’s Bureau of Consumer Protection, in a statement. “The schemes the defendants promoted were designed to enrich those at the top at the expense of everyone else.”

In a complaint, the FTC alleges that three defendants Thomas Dluca, Louis Gatto, and Eric Pinkston promoted chain referral schemes known as Bitcoin Funding Team and My7Network. Using websites, YouTube videos, social media and conference calls, the defendants promised big rewards for a small payment of Bitcoin or Litecoin, the FTC says.

The defendants claimed that Bitcoin Funding Team could turn a payment of the equivalent of just over $100 into $80,000 in monthly income. The FTC alleges, however, that the structure of the schemes ensured that few would benefit. In fact, the majority of participants would fail to recoup their initial investments.

The FTC alleges that a fourth defendant, Scott Chandler, promoted Bitcoin Funding Team and another deceptive cryptocurrency scheme, Jetcoin. Jetcoin also promoted a recruitment scheme and additionally promised investors a fixed rate of return on their initial Bitcoin investments as a result of Bitcoin trading. In a series of promotional calls, Chandler claimed Jetcoin participants could double their investment in 50 days. In reality, the FTC complaint alleges, the scheme failed to deliver on these claims and ceased operation within two months of launching.

In its complaint, the FTC charged that the defendants violated the FTC Act’s prohibition against deceptive acts by misrepresenting the chain referral schemes as bona fide money-making opportunities and by falsely claiming that participants could earn substantial income by participating.

As requested by the FTC, the court has issued a temporary restraining order and frozen the defendants’ assets pending trial.

Broker Charged With Repeatedly Putting Customer Assets at Risk

A registered broker-dealer headquartered in Los Angeles agreed to settle charges that it illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations, according to the Securities and Exchange Commission.

The SEC found that Electronic Transaction Clearing (ETC) violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails.  It requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities.

According to the SEC’s order, ETC put customer securities at risk numerous times in 2015. ETC improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent.  The order also finds that ETC improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.

Without admitting or denying the SEC’s findings, ETC agreed to entry of the order, to pay an $80,000 penalty, to cease and desist from committing or causing any similar violations in the future, and to be censured. ETC cooperated with the SEC’s investigation and has taken remedial steps to prevent future violations.

Oil-and-Gas Company and Execs Charged With Defrauding Investors

The SEC charged a Dallas-based oil-and-gas company and two of its executives with defrauding investors out of at least $950,000 through a string of fraudulent oil-and-gas securities offerings.

The SEC’s complaint alleges that Shezad Akbar used his company, Americrude Inc., to defraud multiple investors in seven securities offerings that purportedly raised funds to acquire working interests in oil-and-gas prospects.

The SEC alleges that Americrude, Akbar, and Daniel Waite, who was Americrude’s nominal president, used a combination of cold calls, high-pressure sales pitches, and false and misleading statements to lure investors into Americrude’s fraudulent offerings. The defendants misrepresented Americrude’s track record, the reserve potential of its oil-and-gas prospects and its intended use of proceeds from the offerings. Akbar is also alleged to have used an alias to conceal his involvement in the offering fraud and to hide his prior felony convictions from potential investors.

According to the complaint, while investors only received back approximately $2,500 of their principal, Americrude and Akbar misused and misappropriated more than $196,000 of investor funds, which were allegedly spent on, among other things, retail and entertainment expenses.

Former Law Clerk in Grand Central Post-It Notes Insider Trading Case

The SEC announced that the United States District Court for the District of New Jersey granted the SEC’s motion for summary judgment against Steven Metro, a former law firm employee previously charged as part of an insider trading scheme.

According to the SEC, the insider trading scheme involved more than a dozen pending corporate transactions in which illegal tips were passed via napkins or Post-It Notes at Grand Central Terminal in New York.

Metro was permanently enjoined from future violations of these provisions and ordered to pay a civil penalty of $25,000. Metro also pleaded guilty to criminal charges arising from his role in the scheme.

— Check out SEC, FINRA Enforcement: Newswire Hackers to Pay $30M on ThinkAdvisor.


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