Cryptocurrency Exec Charged in Alleged $7 Million Fraud Scheme

Inside Subprime: August 29, 2019

By Jessica Easto

An executive at a cryptocurrency escrow company has been charged with a fraud scheme that involves more than $7 million. According to a statement made by the Department of Justice, the US attorney for the Southern District of New York and the assistant director-in-charge of the New York field office of the FBI unsealed the charges in late July of this year.

A federal court is charging the principal with two counts of commodities fraud and two counts of wire fraud. The principal “took over $7 million from two victim companies after making false representations in connection with Bitcoin transactions,” according to the statement. He was arrested in Pennsylvania in July.

According to the allegations, the principal encouraged investors to use the company for cryptocurrency transactions by, in the words of US Attorney Geoffrey S. Berman, “touting a transaction structure that would eliminate any risk of loss during the purchase.” Promotional materials for the company claimed that its cryptocurrency transaction services “minimize[d] settlement default risk,” because according to the principal, the company was as a “custodian of assets” for “both sides of the transaction, there is no risk of default.”

The clients allegedly lost all the money they entrusted to the cryptocurrency company. “Whether a transaction involves cryptocurrency, or any other type of currency, commodity or security,” said Berman, “this Office is committed to rooting out fraud and protecting the integrity of our markets.”

FBI Assistant Director-in-Charge William F. Sweeney alleged that the principal “preyed on [victim companies’’] ignorance” of the crypto space by using unfamiliar jargon. “Thompson allegedly thought no one would ask where their actual money went when they trusted him to invest in Bitcoin, said Sweeney, adding that “our job at the FBI is to investigate fraud and follow the money wherever it leads.”

The FTC provides information on how to identify and avoid cryptocurrency scams. It warns that cryptocurrency does not have the same protections as US dollars because they are not backed by the government.

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