FTC Accuses Bitcoin Operators of Fraud

Inside Subprime: Nov 6, 2018

By Lindsay Frankel

A bitcoin operator is in trouble with the federal government after deleting emails related to an ongoing investigation into a cryptocurrency pyramid scheme. A Florida federal judge disciplined the operator in late October, the latest news in a lawsuit filed by the Federal Trade Commission against four bitcoin operators accused of fraud.

The FTC first went after those four operators and their respective companies in February 2018. The FTC said these “schemes falsely promised that participants could earn large returns by paying cryptocurrency such as bitcoin to enroll in the schemes.”

The defendants are accused of using YouTube and social media like Twitter, among other avenues, to target consumers in get-rich-quick schemes that required those same consumers to recruit others to make money and pay in cryptocurrency — a by-the-book pyramid scheme.

That led to investors losing money in the scheme, and even paying extra through vaguely outlined fees. The FTC claims that the operators promised consumers that an investment of $100 would yield $80,000 a month, which was unlikely for most participants. The four men are being charged with violating the FTC Act. The FTC said this is the first cryptocurrency pyramid scheme case and that thousands were affected by the scam.

One of the operators is accused of promising to double consumers’ investments in just weeks through promotional calls. The FTC said the cryptocurrency venture actually shuttered after two months.

The judge also temporarilyfroze the group’s assets and filed restraining orders in February. The businesses were prevented from continuing to operate.

The companies were forced to hand over emails dating back to January 2014 in April. Now, U.S. District Judge K. Michael Moore, out of South Florida, said that one of the accused deleted all emails prior to May 2018, according to a Law360 article. As stated in court documents, Moore said that the court is presuming those emails would hurt the defendant’s case and be helpful to the FTC’s allegations. He was supposed to save any business-related emails and records.

This case shows the novel ways that fraudsters will market an old scam, the FTC said in an announcement in March. And cryptocurrency faces regulations around the world and criticism for its speculative nature even as some hail it as the future of investment.

The FTC has created a Blockchain Working Group to better understand cryptocurrency and potential fraud arising from it.

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