Federal Judge Sides With CFTC in Patrick McDonnell Bitcoin Fraud Case

Federal Judge Sides With CFTC in Patrick McDonnell Bitcoin Fraud Case

In January 18, 2018 the CFTC filed a complaint against Patrick McDonnell and his company CabbageTech, Corp. d/b/a Coin Drop Markets charging them with fraud in purchases and trading of Bitcoin and Litecoin. Yesterday’s hearing on March 6th, the Honorable Jack B. Weinstein of the U.S. District Court for the Eastern District of New York sided with the Commission that the Defendants will continue to violate the Commodity Exchange Act.

Senior Judge Weinstein entered a Preliminary Injunction Order against Defendants meaning the Commission can sue Patrick McDonnell and CabbageTech, Corp. The CFTC has been granted jurisdiction to enforce virtual currencies such as Bitcoin as a commodity now that the courts recognized Commodity Exchange Act violations (CEA). In a press release the Commission stated,

“The Court’s Order prohibits the Defendants from engaging in fraud in violation the CEA, requires Defendants to preserve books and records, and requires Defendants to provide expedited discovery.  

In its continuing litigation, the CFTC seeks, among other relief, a permanent injunction against future violations of federal commodities laws, restitution to defrauded customers, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, and trading bans, as charged.”

Bitcoin Fraud

The January release by the CFTC stated how the defendants committed fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin,

“The CFTC Complaint alleges that from approximately January 2017 to the present, McDonnell and CDM engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction. In fact, as charged in the CFTC Complaint, the supposedly expert, real-time virtual currency advice was never provided, and customers who provided funds to McDonnell and CDM to purchase or trade on their behalf never saw those funds again. In short, McDonnell and CDM used their fraudulent solicitations to obtain and then simply misappropriate customer funds.

The CFTC Complaint further alleges that to conceal their 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 Complaint also alleges that neither Defendant has ever been registered with the CFTC in any capacity.”

The original complaint can be found here and the court order with judge’s opinion can be found here.

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