Bitcoin [BTC] fraudster loses case against CFTC; Permanent ban issued

On 23rd August, the Commodities Futures Trading Commission [CFTC] won a case against Alleged Bitcoin [BTC] fraudster Patrick Kerry McDonnell and company CabbageTech at the New York Eastern District Court.

In July 2017, CFTC sued New Yorker Patrick Kerry McDonnell and CabbageTech after he was alleged of absconding with customers’ digital investments. The company was charged with fraud and misappropriation in the purchasing and trading of Bitcoin [BTC] and Litecoin [LTC].

The below quote is a portion of the complaint filed by CFTC against defendant Patrick McDonnell:

“The Commodity Futures Trading Commission (“CFTC”) sues Patrick McDonnell and his company Coin Drop Markets. CFTC alleges defendants “operated a deceptive and fraudulent virtual currency scheme . . . for purported virtual currency trading advice” and “for virtual currency purchases and trading . . . and simply misappropriated [investor] funds.” See CFTC Complaint, ECF No. 1, Jan. 18, 2018, at 1 (“CFTC Compl.”).”

The complaint also mentions that the CFTC was seeking injunctive relief, monetary penalties, and restitution of funds received in violation of the Commodity Exchange Act [CEA].

Earlier CFTC issued a statement which mentioned Bitcoin and the likes fall under the category of a commodity and was governed by the Commodity Exchange Act [CEA]. According to the statement:

“Bitcoin and other virtual currencies have been determined to be commodities under the Commodity Exchange Act (CEA). The Commission primarily regulates commodity derivatives contracts that are based on underlying commodities. While its regulatory oversight authority over commodity cash markets is limited, the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce.”

McDonnell argued that the allegations made against him were not legit. He also insisted that Bitcoin was not a commodity. Therefore concluding that CFTC had no right to sue him.

However, the U.S. District Judge Jack B. Weinstein rejected his claims and backed CFTC by stating that they have the right to prosecute any cryptocurrency scammer as Bitcoin and other virtual currencies are termed as commodities under the CEA. The judge stated:

“virtual currencies can be regulated by CFTC as a commodity.”

McDonnell also claimed that the complaint issued by CFTC was politically and financially motivated. Furthermore, he mentioned that the complaint was created out of nowhere in order to protect the hold that the U.S regulation had around Bitcoin and other virtual currency exchanges.

Moreover, he alleges that the CME  [Chicago Mercantile Exchange] was drawn towards the case only due to financial motivation.

During the trial held in July, Judge Weinstein had concluded that McDonnell operated a scam investment company which illegally tricked a large number of investors all over the world to fund in the company using false statements. The company was responsible for misappropriation of funds he said.

Despite making several attempts to close the case defendant McDonnell failed. On 23rd August, the Judge entered his final decision. A permanent ban was issued against Patrick McDonnell and company CabbageTech. He was also ordered to pay a restitution of  $290,429. Additionally, a civil monetary penalty of $871,287 was charged. The case has now been dismissed.