CFTC Enforcement Director Addresses Crypto Fraud in Speech

The Commodities Futures Trading Commission (CFTC) Enforcement Director James M. McDonald delivered a speech yesterday addressing current trends regarding enforcement actions and, of course, crypto and virtual currencies were on the list.

Speaking at the NYU School of Law, McDonald said the Commission is adapting as “fraudsters evolve.” While the basic goals of scammers may remain the same the CFTC is pushed to keep pace with rapidly changing technology. New products like virtual currencies may be an opportunity for investors but they are also prime targets for criminals.

“We have worked hard to ensure that we are evolving with these bad actors—and indeed, staying one step ahead,” said McDonald. “We charged numerous cases involving fraud in connection with virtual currencies. We charged one case that started out as a binary options fraud and then morphed into a virtual currency fraud during the life of the scheme.  And we have taken these cases to trial when necessary, winning significant trial victories during the past Fiscal Year—including a precedent-setting victory in a trial involving Bitcoin fraud.”

Binary option fraud is rampant globally and the CFTC brought one of the largest enforcement actions against an enormous international binary options fraud ring that targeted 75,000 victims. McDonald added that some of these actions are not just civil complaints but sometimes include a simultaneous criminal case.

One of the CFTC’s priorities is to specialize teams. During the last year, several were created including for virtual currencies:

“How do we move as quickly as required, while ensuring each of our teams, across each of our offices, approach the matters in a smart and consistent manner?  Our answer was to develop a set of specialized task forces in the Division to ensure consistency, identify best practices, and develop new approaches and ideas based on past lessons learned.”

McDonald is not driven by cracking down on the bad guys. He understands that along with the crypto scams there is a benefit to blockchain technology:

“New and potentially market-enhancing technologies like virtual currencies and distributed ledger technology need breathing space to survive.  Through work across the Agency, the CFTC has shown its continued commitment to facilitating market-enhancing innovation in the financial technology [Fintech] space. But part of that commitment includes acting aggressively to root out fraud and manipulation from these markets.  The Virtual Currency Task Force is dedicated to identifying misconduct in these areas and holding bad actors accountable,” stated McDonald.

The CFTC’s goal appears to be one where they “foster a true culture of compliance” in markets while enabling innovation to take place by reputable industry players.

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