CFTC Charges Two Defendants With Fraudulent Solicitation Of Bitcoin

Crime, News | October 1, 2018 By:

The US Commodity Futures Trading Commission (CFTC) has filed charges against two defendants for “fraudulent solicitation, impersonation of a CFTC investigator and forging CFTC documents, all in an attempt to steal bitcoin.”

In a complaint filed in the US District Court for the Northern District of Texas, the CFTC charges two individuals using the names Morgan Hunt and Kim Hecroft with running a fraudulent scheme to solicit bitcoin from members of the public, through false or misleading representations or omissions, to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.

According to the complaint, Hunt, purportedly of Arlington, Texas, and doing business as Diamonds Trading Investment House, and Hecroft, purportedly of Baltimore, Maryland, and doing business as First Options Trading, have defrauded at least two investors starting in January 2017 through the use of Facebook and email. The CFTC alleges that the defendants misrepresented to customers that their funds would be used to invest in trading for the benefit of the customers, and misrepresented to customers that they could not withdraw any of their purported investment profits unless they first paid a tax to the CFTC.

“Both Defendants supplied their victims with phony documents in furtherance of their fraud, including doctored versions of a publicly available February 5, 2018, memorandum to CFTC staff from the CFTC’s General Counsel,” the complaint said. “As alleged, defendants’ forgeries altered the CFTC memorandum to make it appear, falsely, that retail investors such as Defendants’ victims were required to pay a “tax obligation” to the CFTC if they wished to withdraw funds from their bitcoin accounts.”

In addition, the CFTC alleges that Hunt arranged for an associate to impersonate a fictitious CFTC investigator in a telephone conversation with his customer so as to support Hunt’s false story about the customer’s “tax obligation.”

James McDonald, CFTC Director of Enforcement, said that increased public awareness of the CFTC’s involvement in policing the crypto markets has provided new opportunities for bad actors.

“As alleged in the Complaint, Defendants sought to exploit public trust in the CFTC through forged documents purporting to be official CFTC memoranda requiring the payment of a tax on cryptocurrency accounts,” McDonald said. “The CFTC does not collect taxes. The CFTC is on guard against fraudsters who try to take advantage of the CFTC’s reputation in order to cheat customers, and will take swift action against such misconduct.”

The CFTC is looking to seek compensation for the defrauded investors, civil financial penalties, disgorgement of dishonest earnings, as well as registration bans and permanent trading and permanent veto from further violations of the Commodity Exchange Act and CFTC regulations.