news4global
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • VideosHot
    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    ये Coins कर सकते बर्बाद ‼️  Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    ये Coins कर सकते बर्बाद ‼️ Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    Gravitas: Cryptocurrency: New tool for money laundering

    Gravitas: Cryptocurrency: New tool for money laundering

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

No Result
View All Result
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • VideosHot
    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    ये Coins कर सकते बर्बाद ‼️  Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    ये Coins कर सकते बर्बाद ‼️ Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    Gravitas: Cryptocurrency: New tool for money laundering

    Gravitas: Cryptocurrency: New tool for money laundering

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

No Result
View All Result
news4global
No Result
View All Result
Home Business

The Gloves Come Off: CFTC Takes Swing at Largest Bitcoin Fraud Scheme | McDermott Will & Emery

July 14, 2022
Reading Time: 9 mins read
0
The Gloves Come Off: CFTC Takes Swing at Largest Bitcoin Fraud Scheme | McDermott Will & Emery
189
SHARES
1.5k
VIEWS
Share on FacebookShare on Twitter

Related articles

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Dubai’s Crypto Regulator Announces Increase In Resources To Handle New Applications – ABP Live

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Microsoft Launches New Bing Likely Powered by OpenAI’s GPT-4 A.I – The New York Times

February 7, 2023

The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action in the US District Court for the Western District of Texas charging Cornelius Johannes Steynberg and Mirror Trading International Proprietary Limited (MTI) (collectively, the defendants) with fraud and registration violations.[1] The action alleges that from May 2018 through March of 2021, the defendants orchestrated a multilevel marketing scheme to solicit bitcoin transfers from individuals into a centralized asset pool (the pool) under the guise of offering investment opportunities.[2] The defendants made these offerings without any CFTC registrations of any kind.[3] The CFTC alleges that MTI should have been registered as a commodity pool operator (CPO) while Steynberg should have been registered as an associated person (AP) of MTI.[4] This case is significant not only because of the magnitude of the alleged fraud, but also for the CFTC’s assertion of enforcement authority over the cryptocurrency industry at large.

MTI was publicly marketed as an opportunity for individuals to invest bitcoin into the defendants’ pool and earn profits from off-exchange leveraged trades.[5] The CFTC has alleged that the defendants’ scheme purportedly amassed ill-gotten gains of at least 29,421 Bitcoin at an estimated value of over $1.7 billion.[6] The CFTC further alleges that the defendants misappropriated all of the pool funds, which makes this enforcement “the largest to date charged by the CFTC involving [b]itcoin.”[7]

The CFTC’s enforcement authority over bitcoin was initially asserted in 2015 via In the Matter of: Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan when the agency first deemed bitcoin a commodity under the Commodity Exchange Act (CEA).[8] In 2017, then-CFTC Chairman J. Christopher Giancarlo publicly branded bitcoin as “a commodity unlike any the Commission has dealt with in the past.”[9] In June 2022, US Securities and Exchange Commission (SEC) Chair Gary Gensler placed added responsibility on the CFTC when he stated that bitcoin is the clearest instance of a cryptocurrency meeting the criteria of a commodity.[10]

Although the CFTC’s authority over bitcoin and cryptocurrency at large has principally been accepted, this enforcement action presents an opportunity for the CFTC to formally augment their authority over bitcoin and the larger cryptocurrency space.

BACKGROUND

MTI was founded in 2019 under the laws of the Republic of South Africa.[11] Steynberg, however, globally marketed MTI’s commodity pool and allegedly engaged with individuals who were not eligible contract participants (ECPs).[12] The CFTC claims “at least 23,000 [MTI] participants from the United States and throughout the world” were conned into contributing to the pool.[13] Steynberg orchestrated this widespread deception by leveraging social media platforms, as well as other direct-to-consumer marketing strategies, to broadcast MTI as an on-ramp into foreign exchange (forex) trading opportunities where MTI participants could earn passive income via MTI’s collective trading of their assets for retail currency on a leveraged, margined or financed basis.[14] MTI’s lenient eligibility thresholds allowed anyone over the age of 18 and with a minimum commitment of $100 in bitcoin to qualify as an MTI participant.[15] MTI participants were led to believe that their bitcoin would be deposited into the pool and that trades facilitated by a “bot” would net up to 10% in profits per month.[16]

Even though MTI participants were assured that they could withdraw any deposited funds within 48 hours of a request, it was later discovered that no such trading “bot” existed—nor were any of the purported trades actually profitable—and that all bitcoin transactions occurred at the sole discretion of the defendants.[17] The CFTC alleges that the defendants sought to further their deception through the falsification of account statements and by effectively running a Ponzi scheme where principal deposits of later MTI participants were redistributed to earlier MTI participants to provide the illusion of “returns.”[18] The defendants further attempted to grow the pool by establishing an “affiliate” program through which MTI participants were influenced to recruit friends and family members to register with MTI in return for bonuses on the platform.[19] In reality, these new MTI participants were also depositing bitcoin into MTI accounts centrally controlled by Steynberg and devoid of any actual trading activity to generate organic profits.

BEGINNING OF THE END

By July 2020, the defendants were issued a cease-and-desist order by the Texas State Securities Board (TSSB) after the TSSB found that Steynberg had made materially misleading solicitations and that MTI’s operations were fraudulent.[20] Subsequently, in August 2020, the defendants lost access to their account at FXChoice, the primary broker meant to enable MTI’s forex trades. FXChoice had frozen the defendants’ account because of suspicions of fraud.[21] At this time, just 1,280 bitcoin (valued at $56 million) existed in the defendants’ FXChoice account, even though the defendants had amassed 29,421 Bitcoin over the duration of the scheme.[22] FXChoice ultimately transferred the frozen balance to South African bankruptcy liquidators in April 2021 pursuant to an order from the South African Financial Sector Conduct Authority (FSCA).[23] After FXChoice froze the defendants’ assets and refused to do any further business with the defendants, “Steynberg, individually and as an agent of MTI, represented to [MTI] participants that MTI would transfer all of the [p]ool’s trading accounts from FXChoice to a purported online broker identified as Trade300.”[24] Trade300 did not and does not exist.[25] Although Steynberg had attempted to evade South African law enforcement as a fugitive, he was recently arrested by INTERPOL in Brazil.[26]

CFTC ENFORCEMENT ACTION

The CFTC has alleged four counts against the defendants under the CEA. First, the CFTC has alleged that the defendants had participated in a fraudulent scheme involving unregistered forex trading.[27] The first count includes the unlawful trading of commodity futures, use of mail or other instrumentalities of interstate commerce in connection with retail forex transactions, illegal off-exchange leveraged or margined forex transactions with non-ECPs, and that Steynberg himself exercised direct and indirect control over MTI either in bad faith or knowingly causing MTI to violate the CEA.[28]

The second count alleges that Steynberg acted as an unregistered AP of MTI, which itself was operating as an unregistered CPO by soliciting, accepting or receiving funds or property from the public while engaged in a business of forex-based investment transactions.[29] Under this second count, each act of fraudulent solicitation, misappropriation and false statement is a separate and distinct violation.[30]

The third count alleges a failure to operate a commodity pool as a separate legal entity, failure to receive funds in the pool’s name and a commingling of pool funds.[31]

The fourth and final count alleges that the defendants failed to register as a CPO or as an AP despite their continued operations qualifying them as such.[32]

SIGNIFICANCE IN THE EVOLVING REGULATORY ENVIRONMENT

The compulsory adaptation of regulatory schemes to the public’s adoption of emerging technologies is a reoccurring theme in American jurisprudence. The regulation of cryptocurrency is no different. The timing of this enforcement action dovetails with CFTC Chairman Rostin Benham’s public push to seek additional resources for the CFTC and marks a prime opportunity to show the capacity of the agency as it concerns the regulation of cryptocurrency markets.[33] This enforcement action also coincides with the recently proposed Financial Innovation Act (FTA). The FTA is a bipartisan effort from the duo of Senator Cynthia Lummis (R-WY) and Senator Kirsten Gillibrand (D-NY) who aim to pass a federal bill that will establish guardrails around the cryptocurrency industry.[34] The FTA suggests a categorization of cryptocurrencies as commodities, bringing cryptocurrency further into the realm of the CFTC’s authority.[35] Weeks before Steynberg’s enforcement action, at the Chainalaysis Links conference, CFTC Chairman Benham publicly reiterated the need for the CFTC to have additional authority to regulate cryptocurrencies.[36]

Enforcement actions such as this present a tangible test as to the CFTC’s ability to discipline and mature the cryptocurrency industry. At a time when cryptocurrency scams are seemingly everywhere, with more than 46,000 individuals collectively losing over $1 billion in 2021 alone, the CFTC has positioned itself to be the policing authority over this once-touted “wild west” of an industry.[37] The outcome of this most recent CFTC enforcement action will not only influence the agency’s credibility among consumers, but it could also chart the course as to how much power policymakers bestow in the CFTC moving forward.

Aristotle Mannan, a summer associate in the Boston office, also contributed to this article.

[1] See “Commodity Futures Trading Commission v. Mirror Trading International Proprietary Limited, and Cornelius Johannes Steynberg,” Case No. 1:22-cv-635, (W.D. Tex. 2022) [hereinafter “MTI Complaint”].

[2] See “CFTC Charges South African Pool Operator and CEO with $1.7 Billion Fraud Involving Bitcoin,” CFTC, Release Number 8549-22, (June 30, 2022) [hereinafter “MTI Release”].

[3] Id.

[4] MTI Complaint, supra note 1 at 4.

[5] MTI Complaint, supra note 1 at (Defendants “purportedly traded off-exchange, retail foreign currency (‘forex’) on a leveraged, margined, and/or financed basis with participants who were not eligible contract participants (‘ECPs’) through a proprietary ‘bot’ or software program.”).

[6] MTI Release, supra note 2.

[7] See “Statement of Commissioner Kristin Johnson Regarding the CFTC Charging South African Commodity Pool Operator and CEO with $1.7 Billion Fraud Involving Bitcoin,” CFTC, Public Statements & Remarks, (June 30, 2022) [hereinafter “MTI Public Statement”].

[8] See In the Matter of: Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC Docket No. 15-29. 2015 WL 5535736 (Sept. 17, 2015).

[9] See “CFTC Statement on Self-Certification of Bitcoin Products by CME, CFE and Cantor Exchange,” CFTC, Release Number 7654-17, (December 1, 2017).

[10] Daniel Kuhn, SEC’s Gensler Reiterates Bitcoin Alone is a Commodity. Is He Right?, CoinDesk (June 28, 2022) https://www.coindesk.com/layer2/2022/06/28/secs-gensler-reiterates-bitcoin-alone-is-a-commodity-is-he-right/

[11] See e.g., Mirror Trading International (PYTC) LTD t/a MTI, Registration Number: 2019/205570/07.

[12] 7 U.S.C. § 1a(18)(A)(xi).

[13] MTI Complaint, supra note 1 at 7.

[14] MTI Complaint, supra note 1 at 8.

[15] MTI Complaint, supra note 1 at 9.

[16] Id (“Steynberg, individually and as an agent of MTI, claimed MTI’s trading ‘bot’ achieved ‘profits’ of 10% per month, and that the MTI Pool had never had a losing trading day except for one day.”).

[17] MTI Complaint, supra note 1 at 15 (“There was no trading ‘bot’ successfully trading on behalf of participants; no profitable trading in forex, or anything else took place on behalf of pool participants[.]”).

[18] MTI Public Statement, supra note 2 (“Instead of trading forex as represented, Defendants misappropriated pool funds, misrepresented their trading and performance, provided fictitious account statements as well as created a fictitious broker at which trading purportedly took place, and in general operated the pool as a Ponzi scheme.”).

[19] MTI Complaint, supra note 1 at 9.

[20] See “In the Matter of Mirror Trading International PTY LTD; Cornelius Johannes ‘Johann’ Steynberg; ForexandBitcoin.com; Michael Aaron Cullison; Steve Herceg and Brian D. Knott,” Texas State Securities Board, Order No. ENF-20-CDO-1811 (July 7, 2020).

[21] MTI Complaint, supra note 1 at 14.

[22] Id.

[23] See “The FSCA’s Investigation on Mirror Trading International Nears Completion,” Financial Sector Conduct Authority, FSCA Press Release, (December 17, 2020).

[24] MTI Complaint, supra note 1 at 14.

[25] MTI Complaint, supra note 1 at 16 (“The broker Trade300 did not exist and was created by Steynberg to further the fraudulent scheme[.]”).

[26] MTI Release, supra note 2.

[27] 7 U.S.C. § 6b(a)(2)(A)-(C); Regulation § 5.2(b)(1-3); 17 C.F.R. § 5.2(b)(1)-(3) (2021).

[28] Id.

[29] 7 U.S.C. §6o(1)(A)-(B).

[30] Id.

[31] 17 C.F.R. § 4.20(a)(1),(b),(c) (2021).

[32] 7 U.S.C. §§ 2(c)(2)(C)(iii)(I)(cc), 6m(1), 6k(2); Regulations 5.3(a)(2)(i), (ii); 17 C.F.R. §§ 5.3(a)(2)(i), (ii) (2021).

[33] Derek Andersen, CFTC look at expanded authority to regulate crypto, for less than a 10% budget increase, Cointelegraph (March 29, 2022) https://cointelegraph.com/news/ctfc-looks-at-expanded-authority-to-regulate-crypto-for-less-than-a-10-budget-increase.

[34] See “Lummis-Gillibrand Responsible Financial Innovation Act,” S. 4356, 117th Congress (2021-2022).

[35] Id.

[36] Mengqi Sun, CFTC Signals Intent to Increase Enforcement of Crypto-Related Cases, The Wall Street Journal (May 18, 2022), https://www.wsj.com/articles/cftc-signals-intent-to-increase-enforcement-of-crypto-related-cases-11652908480.

[37] Emma Fletcher, Data Spotlight: Reports show scammer cashing in on crypto craze, Federal Trade Commission (June 3, 2022), https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze#crypto1

[View source.]

Share76Tweet47

Related Posts

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Dubai’s Crypto Regulator Announces Increase In Resources To Handle New Applications – ABP Live

by admin
February 8, 2023
0

Dubai’s Crypto Regulator Announces Increase In Resources To Handle New Applications  ABP Live

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Microsoft Launches New Bing Likely Powered by OpenAI’s GPT-4 A.I – The New York Times

by admin
February 7, 2023
0

Microsoft Launches New Bing Likely Powered by OpenAI’s GPT-4 A.I  The New York Times

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Hut 8 and US Bitcoin announce merger of equals to create a … – PR Newswire

by admin
February 7, 2023
0

Hut 8 and US Bitcoin announce merger of equals to create a ...  PR Newswire

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Record-breaking 2022 for North Korea crypto theft: UN report – CNA

by admin
February 6, 2023
0

Record-breaking 2022 for North Korea crypto theft: UN report  CNA

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Washington turns hostile on crypto – Axios

by admin
February 6, 2023
0

Washington turns hostile on crypto  Axios

Load More
  • Trending
  • Comments
  • Latest

Bitcoin’s Main Rival Ethereum Hits A Fresh Record High: $425.55

March 3, 2022

Bitcoin Is ‘Definitely Not a Fraud,’ CEO of Mobile-Only Bank Revolut Says

March 2, 2022
How online shopping has changed over the last 30 years | National

How online shopping has changed over the last 30 years | National

April 6, 2022
Protocon Announces ‘Contract Model’, an Alternative

Protocon Announces ‘Contract Model’, an Alternative

April 6, 2022

US Commodities Regulator Beefs Up Bitcoin Futures Review

0

Bitcoin Hits 2018 Low as Concerns Mount on Regulation, Viability

0

India: Bitcoin Prices Drop As Media Misinterprets Gov’s Regulation Speech

0

Bitcoin’s Main Rival Ethereum Hits A Fresh Record High: $425.55

0
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

The bigger the economy, the bumpier it gets – POLITICO

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Does Bitcoin's current rally mark start of crypto-spring? – wknd.

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Fed Board Prohibits Member Banks from Holding Cryptoassets as … – Blockworks

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Dubai’s Crypto Regulator Announces Increase In Resources To Handle New Applications – ABP Live

February 8, 2023

Latest News

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

The bigger the economy, the bumpier it gets – POLITICO

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Does Bitcoin's current rally mark start of crypto-spring? – wknd.

February 8, 2023

Categories

Site Navigation

  • Home
  • About us
  • Contact us
  • Privacy policy
  • Terms and services
  • Home
  • About us
  • Contact us
  • Privacy policy
  • Terms and services

© 2022 Designed by news4global

No Result
View All Result
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • Videos

© 2022 Designed by news4global