CFTC wins landmark case against cryptocurrency boiler room operator
The Commodity Futures Trading Commission (CFTC) has won a landmark case resulting in court order to permanently ban a cryptocurrency promoter from ever operating in the sector again.
US District Judge Jack B Weinstein in Brooklyn, New York, concluded on Thursday that defendants Patrick K McDonnell and his firm Cabbage Tech, also known as Coin Drop Markets had operated a “bold and vicious fraud” and issued a permanent injunction against them.
The court found in favour of the CFTC, ruling that it had the authority to bring the fraud action against McDonnell. Cryptocurrency regulation in the US something of a grey area, but the Commission maintained that it had the regulatory authority over digital tokens that act as commodities.
The case centred on McDonnell’s activities as an advisor on, and vendor of cryptocurrencies. Victims of his fraud believed they were paying for the purchase and sale of digital tokens and receiving trading tips from McDonnell and a team of experts.
It was discovered, however, that McDonnell was simply misappropriating funds from his victims – operating a boiler room from his “dusty and grimy” home basement in Staten Island, New York.
Indeed, Cabbage Tech and Coin Drop Markets were nothing more than fronts for his fraudulent activities and McDonnell, far from running an expert team, worked alone.
McDonnell came under suspicion when in June he claimed Coin Drop Markets had been hacked and was suspending services. At this point, all associated websites were shut down, social media and chatroom accounts deleted and the boiler room shut down.
In addition to the permanent injunction, McDonnell was ordered to pay $290,429 in restitution and $871,287 in penalties.
McDonnell had claimed he could not afford to pay for counsel and had represented himself on the occasions he attended court. The judge granted a default judgment against Cabbage Tech, which was also not represented by a lawyer.