CFTC Wins Crypto Fraud Trial Against Patrick McDonnell

Crime, News | August 27, 2018 By:

The US Commodity Futures Trading Commission (CFTC) has won a court order to permanently bar CabbageTech and its founder, Patrick McDonnell, from accessing the crypto futures market.

In January of this year, the CFTC charged McDonnell and his company with fraud and misappropriation for allegedly robbing customers that signed up for cryptocurrency trading. McDonnell subsequently argued that the CFTC did not have the authority to regulate his commercial operations. However, in March, Jack Weinstein, a federal judge for the Eastern District of New York, ruled that the agency had legitimate legal standing to go forward with a fraud lawsuit.

On August 23, following a four-day bench trial, Weinstein found that McDonnell and Coin Drop Markets (CDM), a company operating under CabbageTech, engaged in a deceptive and fraudulent scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time crypto trading advice and for cryptocurrency purchasing and trading on behalf of the customers under McDonnell’s direction. As found in the decision, the customers did not receive the advice they paid for and customers who provided funds to McDonnell and CDM to purchase or trade on their behalf never saw those funds again.

“To conceal their fraudulent scheme, soon after obtaining customer funds, defendants removed the website and social media materials from the Internet and ceased communicating with CDM customers, who lost most if not all of their invested funds due to defendants’ fraud and misappropriation,” the CFTC said. “Neither defendant has ever been registered with the CFTC in any capacity.”

In addition to the permanent ban, the court ordered McDonnell and his company to pay $290,429.29 in restitution to customers and a $871,287.87 civil monetary penalty. The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the defendants may not have sufficient funds or assets.

“As the court’s judgment makes clear, the CFTC will continue to act aggressively to identify bad actors involved in virtual currencies and hold them accountable,” said James McDonald, the CFTC’s Director of Enforcement. “This case also shows the CFTC’s readiness to prove its case at trial.”