The Commodity Futures Trading Commission (CFTC) on January 18, 2018 filed a civil enforcement action in the U.S. District Court for the Eastern District of New York against Defendants Dillon Michael Dean of Longmont, Colorado, and his company The Entrepreneurs Headquarters Limited, a UK-registered company. The CFTC Complaint charges the Defendants with engaging in a fraudulent scheme to solicit Bitcoin from members of the public, misrepresenting that customers’ funds would be pooled and invested in products including binary options, making Ponzi-style payments to commodity pool participants from other participants’ funds, misappropriating pool participants’ funds, and failing to register with the CFTC as a Commodity Pool Operator (CPO) and Associated Person of a CPO, as required.
CFTC’s Director of Enforcement Comments
James McDonald, the CFTC’s Director of Enforcement, commented: “Increased public interest in Bitcoin and other virtual currencies has provided new opportunities for bad actors. As alleged in the Complaint, Defendants sought to take advantage of that public interest, offering retail customers the chance to use Bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme. As this case shows, the CFTC will continue to take swift action to stop such fraudulent schemes and to hold fraudsters accountable for their misconduct.”
Specifically, the Complaint alleges that, from approximately April 2017 through the present, Defendants, who have never been registered with the CFTC in any capacity, have engaged in a fraudulent scheme, through which they solicited at least $1.1 million worth of Bitcoin from more than 600 members of the public. Defendants allegedly promised to convert this Bitcoin into fiat currency to invest on the customers’ behalf in a pooled investment vehicle for trading commodity interests, including trading binary options on an online exchange designated as a contract market by the CFTC. Potential pool participants were solicited to invest with Defendants by false claims of trading expertise and promises of high rates of return. The Complaint further alleges that, rather than convert customers’ Bitcoin to fiat currency to invest in binary options contracts, as promised, Defendants misappropriated their customers’ funds, including by using the funds to pay other customers, in the manner of a Ponzi scheme.
The Complaint alleges that Defendants solicited customer deposits using company websites, YouTube videos, and Facebook posts, where Defendants claimed that customers’ funds would be pooled and invested in commodity options on behalf of customers, that Dean had “strong skills” in options trading, and that Defendants were generating high rates of return through trading commodity options, among other false claims. But, as alleged, Defendants were not actually engaged in trading on behalf of their customers, and Defendants’ purported trading profits were fictitious. As alleged in the Complaint, Defendants stopped making payments to their customers, having misappropriated over $1 million in customers’ funds, while Dean has launched another similar purported trading venture under the name Real Trade Profits, using a website to solicit customers to deposit Bitcoin for a pooled investment in binary options trading and promising high rates of return.
In its ongoing litigation, the CFTC seeks restitution to defrauded persons, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations, as charged.
The CFTC thanks and acknowledges the assistance of the British Columbia Securities Commission.
This case is brought in connection with the CFTC Division of Enforcement Virtual Currency Task Force, and the staff members responsible for this case are Christopher Giglio, David C. Newman, W. Derek Shakabpa, David MacGregor, Lenel Hickson Jr., and Manal M. Sultan.
CFTC’s Customer Fraud Advisory on Virtual Currencies and Bitcoin
The CFTC has issued a Customer Advisory on the Risks of Virtual Currency Trading to inform the public of possible risks associated with investing or speculating in virtual currencies or recently launched Bitcoin futures and options. The CFTC has also issued several other customer protection Fraud Advisories that provide the warning signs of fraud.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaintonline.
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