CFTC Halts Fraudulent Binary Options Scheme Involving Virtual Currency04/16/2018On April 16, 2018, the Commodity Futures Trading Commission (CFTC) filed a complaint charging two individuals and several companies with operating a fraudulent binary options scheme involving virtual currency and accepting customer funds without registering as a futures commission merchant.
The CFTC alleged that the defendants solicited investors to purchase illegal off-exchange binary options, falsely claimed that the investments would generate significant profits based on the defendants’ purported past profitable investments and misappropriated customer funds. In an attempt to cover up their misappropriation, the defendants allegedly told customers they were closing their binary options business and invited customers to transfer their account balance into a virtual currency known as ATM Coin. Though the ATM Coin positions initially showed substantial gains, the customers were subsequently locked out of their accounts, preventing them from withdrawing funds. The CFTC has demanded that the defendants pay restitution to the scheme’s victims and disgorge ill-gotten gains. The CFTC also seeks civil monetary penalties, permanent bars from registration and trading and permanent injunctions from future violations of the Commodity Exchange Act and CFTC Regulations.
While this continues to reflect the CFTC’s focus on policing fraudulent activity in derivatives and virtual currency markets, it also highlights a concern that bad actors can use virtual currencies and tokens to channel ill-gotten gains or obfuscate illegal and fraudulent activity. We can expect further regulatory scrutiny of the use of virtual currencies and tokens from this perspective.