Bad Actor Takes the Crypto and Runs; Scam Brings CFTC Charges

CFTC sues company that allegedly took in money, including Bitcoins, with the promise of dispersing advice, and never did so.

In a ruse designed to capitalize on the price rises in the crypto space, Cabbage Tech Corp. offered all kinds of advice to those willing to part with their Bitcoin and Litecoin for it.

Allegedly, they never planned to produce anything of value to those who forked over their cryptos, and on Friday the U.S. Commodity Futures Trading Commission (CFTC) charged the runner of the company with committing fraud.

Specifically, the CFTC filed a federal civil enforcement action in the U.S. District Court for the Eastern District of New York against Patrick K. McDonnell and his CabbageTech, which does business as Coin Drop Markets. He is charged with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.

McDonnell faces having to pay restitution to the defrauded customers, as well as civil monetary penalties, and trading bans.

What this scam entailed

The fraud allegedly began in January 2017. Through a website, customers were induced to send money and virtual currencies to Coin Drop Markets. In exchange, they were supposed to get real-time virtual currency trading advice. Also, virtual currency purchasing and trading was supposed to be done on their behalves under McDonnell’s direction.

Instead of dispersing advice, or purchasing or doing trades on behalf of those who’d forked over their cryptos, McDonnell shut down the website and social media sites and stopped communicating with customers.

All this was meant to conceal the scheme, in which the CFTC says caused these people to lose most, if not all, of their invested funds.

A classic scheme

This is a classic example of people trying to scheme others as the crypto craze leaves the unwitting, and even some who should know better, vulnerable. In reality, customers only bought into the defendants’ fraudulent scheme, said James McDonald, the CFTC’s Director of Enforcement.

He added that the actions it is taking against McDonnell and his company are among the latest examples of the CFTC’s continuing commitment to “act aggressively and assertively to root out fraud and bad actors involved in virtual currencies.”

In a statement, McDonald said:

“As alleged, the Defendants here preyed on customers interested in Bitcoin and Litecoin, promising them the opportunity to get the inside scoop on the next new thing and to benefit from the trading acumen of a supposed expert.”

Word to the wise

These types of scams have been what regulatory agencies have warned consumers about extensively as the popularity of cryptos has increased.

Interesting about this CabbageTech scam is that its runners were promising that investors could see returns of 300% in less than a week. This kind of guarantee should have been a bright red flag, but still people sent their monies to this company.

What’s more, the CFTC’s complaint alleges that McDonnell wasn’t, and has never been, registered with the CFTC in any capacity. This is the kind of information investors should know to look for about these so-called crypto companies before sending them money.

While it is understandable that many want in on the crypto space, it is imperative that common sense and discipline be used as gauges before decisions are made to send money to an unknown company.

To help the decision-making be even sounder, the CFTC has a list of guidelines.