The Commodity Futures Trading Commission has accused a Colorado businessman and his UK-registered company of violating trading regulations and defrauding at least 600 customers of more than $1.1 million, the agency announced Friday.
The detailed complaint alleges that the fraud scheme has been going on since at least April 2017 and involved fraudulent ad campaigns that used false promises to induce clients to send their bitcoins to participate in binary options trading pools and other investments, but in fact they were duped into investing in a Ponzi scheme.
The CFTC’s charges were unsealed yesterday in federal court in the Eastern District of New York, against Dillon Michael Dean and the company he controls, The Entrepreneurs Headquarters Limited, an enterprise that takes investment in the form of Bitcoin and uses the money to trade various instruments.
Longmont-based Dean took the digital coins from investors to be converted into fiat currency and then channelled into a pooled investment vehicle for trading commodities, including binary options.
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To create the illusion of stability, the defendants allegedly prepared and distributed false account statements to fund participants, telling investors that they made steady gains from trading commodity interests, according to the complaint.
The defendants falsely told their customers, among other claims, that they offer a safe investment with steady and guaranteed returns. Dean solicited pool participants by falsely representing to them the purported success of his personal investments and that he had “strong skills” in options trading.
Additionally, in order to shore up the fraud, he used a Ponzi-style scheme in which he issued payments to investors that he claimed represented profits but were in fact other investors’ funds.
If convicted, Dean could serve up to 20 years in prison.
The CFTC has asked the court to provide full restitution to defrauded pool participants, disgorgement of ill-gotten gains and to pay the appropriate civil monetary penalties. In addition to fiscal claims, the agency seeks permanent registration and trading bans and a permanent injunction from future violations of federal commodities laws.
James McDonald, the CFTC’s Director of Enforcement, commented: “Increased public interest in Bitcoin and other virtual currencies has provided new opportunities for bad actors. As alleged in the Complaint, Defendants sought to take advantage of that public interest, offering retail customers the chance to use Bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme. As this case shows, the CFTC will continue to take swift action to stop such fraudulent schemes and to hold fraudsters accountable for their misconduct.”