CFTC Charges Bitcoin Fund with Fraud and Failure to Register

The CFTC filed a civil enforcement action against a South African investment fund and its CEO for an allegedly fraudulent scheme that raised over $1.7 billion worth of Bitcoin from the public.

Before the United States District Court, Western District of Texas, the CFTC alleged that the CEO used various websites and social media to fraudulently solicit bitcoin from public participants across the world to participate in a commodity pool. The CFTC asserted that the commodity pool conducted a variety of financial transactions with public participants, who were not eligible contract participants. The CFTC alleged that of the public participants at least 23,000 were from the United States. Additionally, the CFTC stated that the company and the CEO were not appropriately registered with the CFTC.

The CFTC charged that the fund and its CEO violated:

• CEA Sections 2(c)(2)(C)(iii)(I)(cc) ("Jurisdiction of Commission"), 4b(a)(2)(A)-(C) ("Contracts Designed to Defraud or Mislead"), 4k(2) ("Registration of Associates of Futures Commission Merchants, Commodity Pool Operators, and Commodity Trading Advisors"), 4m(1) ("Use of Mails or Other Means or Instrumentalities of Interstate Commerce by Commodity Trading Advisors and Commodity Pool Operators") and 4o(1)(A)-(B) ("Fraud and Misrepresentation by Commodity Trading Advisors, Commodity Pool Operators, and Associated Persons"); and

• CFTC Rule 4.20(a)(1), (b) and (c) ("Prohibited Activities"), 5.2(b)(1)-(3) ("Prohibited Transactions") and 5.3(a)(2)(i), (ii) ("Registration of Persons Engaged in Retail Forex Transactions").

The CFTC is seeking (i) full restitution to defrauded investors, (ii) disgorgement of ill-gotten gains, (iii) civil monetary penalties, (iv) permanent registration and trading bans and (v) a permanent injunction against future violations of the CEA and CFTC Rules.