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CFTC Charges NY-based Crypto Trader ‘Coin Signals’ With $5M Fraud

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The U.S. Commodity Futures Trading Commission [CFTC] filed a civil enforcement action on the 26th of January against New York-based crypto trader Jeremy Spence alleging fraud for operating a Ponzi scheme involving digital assets such as Bitcoin and Ethereum.

CFTC Unveils Civil Fraud Charges

CFTC’s complaint alleged that Spence fraudulently solicited more than $5 million of investments from individuals in a cryptocurrency investment scheme. Acting Director of Enforcement Vincent McGonagle stated,

“Fraudulent schemes, like that alleged in this case, undermine the integrity and development of digital asset markets and cheat customers out of their hard-earned money. We will continue to work to protect participants in our markets from fraudulent practices and hold fraudsters accountable.”

The 24-year old cryptocurrency trader was arrested by the FBI in Rhode Island on Tuesday morning on charges of wire fraud as well as commodities fraud that have maximum sentences of up to 30 years combined.

According to prosecutors and the CFTC, Spence’s trading allegedly led to massive trading losses for his investors and his payouts of what was supposed to be the profits of the clients were, in fact, misappropriated funds of other customers.

The complaint also stated that Spence had previously reported false account balances to his investors in a bid to thwart redemptions. And in a classic Ponzi-like fashion, used money from new investors to pay back his earlier investors.

In addition, Spence allegedly engaged in numerous efforts to hide his misconduct, including misrepresenting his trading profitability and the number of assets he had under management, misappropriating customer funds, and issuing fictitious performance statements.

As per CFTC’s complaint, Spence admitted to his customers that he had been involved in ‘lies and deceit.’

Back in 2018, a Florida-based law firm called Silver Miller had filed a class-action lawsuit against Spence who was operating under the moniker ‘Coin Signals’.

Manhattan U.S. Attorney Audrey Strauss, in an official statement, alleged that Spence lured investors to his cryptocurrency investment scam by claiming returns of up to 148% which resulted in a $5 million void in his customer’s accounts. Strauss further added,

“Spence’s alleged conduct should strongly signal would-be investors to thoroughly educate themselves in the cryptocurrency ecosystem before falling prey to investment scams promising huge returns for small investments that are indeed too good to be true.”

Crypto Mom Believes US Govt Intended To Send A Message To The Crypto-Verse Via BitMEX Arrests

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October was rather detrimental to BitMEX’s cryptocurrency exchange. The US regulators have charged and arrested the owners of BitMEX for illegally running the exchange. Apart from this, over the course of the case, the exchange even suffered acute losses. The Commissioner of the Securities and Exchange Commission, Crypto Mom, Hester Peirce, commented on the same in a recent interview.

US Law Enforcement Taking Crypto Seriously?

Hester Peirce is rightfully called the Crypto Mom following her inclination towards cryptocurrencies. The Commissioner has been vocal about her stance on crypto as well as the regulators’ less progressive attitude towards cryptocurrency. While Peirce was recently elected to serve as the Commissioner of the SEC once again, the crypto community viewed this as a great boost for the industry.

Appearing in a recent interview with Laura Shin, Peirce revealed her opinion about the latest tiff between BitMEX and the United States Commodity Futures Trading Commission [CFTC]. Peirce believes that the US government was trying to put out a message. Elaborating on the same, the Commissioner said,

“Well, I think that the message has been coming to the industry fairly loud and clear on the AML, KYC front, and I’m sure it will continue. It’s a difficult area frankly for very traditional financial firms, as well, and I think that lots of firms run into trouble there, but I think that it’s definitely sending a message to the crypto world.”

Highlighting how the case was not under the purview of the SEC, Peirce suggested that her knowledge about the case was limited to what she read on the papers.

After being accused by the CFTC as well as the Department of Justice for violating the Bank Secrecy Act, BitMEX publicly denounced all the allegations. Following these charges, the exchange incurred an immense loss as a total of $243 million in BTC was withdrawn within one hour post the announcement. However, the exchange went on to change the management as all the three owners were charged. While Samuel Reed sought a way out of jail, he was mandated to appear before court whenever summoned.

BitMEX Switches Up Leadership Following CFTC Allegations; CTO Samuel Reed Released

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Just last week, prominent cryptocurrency exchange, BitMEX made its way under the spotlight following a series of charges from the government of the United States. After publicly denying the accusations, the exchange recently released a blog post highlighting the change in leadership at the firm.

Defendants Step Down From Their Respective Roles

The parent company of BitMEX, 100x Group with the consent of the founders, has reportedly decided to change the management of the cryptocurrency exchange. The allegation made by the Commodities Futures Trading Commission [CFTC] highlighted Ben Delo, Arthur Hayes, and Samuel Reed, the owners of the exchange as the primary accused. The Department of Justice also charged the trio for disrupting the Bank Secrecy Act.

Soon after the charges were made public, BitMEX went on to share a blog post denying the allegations. However, almost a week later, the exchange decided to switch up the leadership roles in the firm. Arthur Hayes who was previously the CEO of the platform was replaced by Vivien Khoo who was serving as the chief operating officer at the 100x Group. However, Khoo’s latest upgradation is on an interim basis.

Samuel Reed was also dethroned from his role as the CTO of the exchange. The post further revealed that Ben Delo was restrained from holding any executive positions in the 100x Group. The Chairman of the 100x Group shared his stance on the latest switch in the management. He said,

“These changes to our executive leadership mean we can focus on our core business of offering superior trading opportunities for all our clients through the BitMEX platform, whilst maintaining the highest standards of corporate governance.”

While Wong suggested that the platform’s senior leadership team was well in place to continue running the operations, the firm revealed that the senior leaders and the technology team would carry out the daily management of the platform as usual.

Furthermore, Greg Dwyer had reportedly taken a leave of absence as the Head of Business Development.

BitMEX CTO Finds His Way Out Of Jail

After being arrested for violating the Banking Secrecy Act as well as illegally running the cryptocurrency exchange, Samuel Reed was arrested with the other two owners. Reed was the first to go behind bars while the others part of the case were still being questioned. However, his $5 million appearance bond was approved by the United States District Court on 3 October 2020.  A virtual court hearing had taken place on 1 October 2020 between Reed and the Court.

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With the passports of both Reed as well as his wife being seized, he would have to appear before the court if he was to be convicted. While the maximum sentence for the allegations made against the trio is up to five years, Reed would have to surrender and serve a sentence if the allegations were proven by the prosecutors.

Over 45,000 BTC Pulled from BitMEX after CFTC Charges

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The US Commodity Futures Trading Commission [CFTC] and the acting U.S. Attorney for the Southern District of New York’s announcement charging BitMEX with facilitating unregistered trading and other illegal transactions did not make good reading.

Since then, more than 45,000 BTC have been pulled from the exchange which represents over 20% of the Bitcoin deposited on BitMEX, and nearly 1% of the total circulating BTC supply. This was noted by analysis firm Glassnode which further revealed this resulted in a major drop of 27% Bitcoin balance on BitMEX. The figures fell to 120,000 BTC.

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Notably, the largest drop happened on the 2nd of October, when 44,000 BTC were withdrawn from the exchange. This was observed to be the largest negative net flow until the date. Around 30% of those funds were transferred to crypto exchanges like Genimi and Binance in equal amounts.

It was not just the spot trading that was affected. On the derivatives front as well, Bitcoin’s open interest in perpetual futures contracts on BitMEX saw a significant decline by approximately 24%, from $590 million to $450 million. This level was last seen in May as the market was recovering from the Black Thursday crash.

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But could this be an omen?

The US prosecutors filing criminal charges on the four founders of BitMEX which has been a crucial player in both spot as well derivatives space is worrisome. And despite the fact that this news did not have much impact on the broader cryptocurrency market, a space that is mostly driven by FOMOs and FUDs, was indeed a sign of maturity.

The recent accusations could potentially help Bitcoin, and the rest of the cryptocurrency market by extension, to grow. According to popular Analyst Willy Woo, cases like this would help platforms “to clean up their practices”. He further expects to see “less volatility, less scam-wicking, more spot volumes, more organic moves, more institutional money.”

Bill Barhydt, Abra Co-Founder, and CEO had recently opined that the key reason as to why the US still does not have a Bitcoin ETF was because of markets such as Bitmex. He further went on to say that BitMEX is easily manipulated by large traders. He had further added,

“This episode will likely be a boon for other regulated futures exchanges that offer significant leverage. Gambling is gambling. If you work in crypto please wake up. If your firm hasn’t lawyered up then you’re working at the wrong firm. Hodlers and lawyers are the big winners here.”

BitMEX Incurs Acute Loss Despite Denying CFTC And DOJ Charges

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Prominent cryptocurrency exchange, BitMEX recently fell under the purview of the Commodities Futures Trading Commission [CFTC] of the United States. The financial regulator reportedly charged the owners of BitMEX for illegally running the crypto derivatives platform.

BitMEX Strikes Back

BitMEX has been one of the notable exchanges in the crypto industry. However, the latest news could pose as a huge setback for the exchange. In a recent release, the CFTC alleged that BitMEX was an unregistered platform and had violated several regulations put forth by the CFTC including the embodiment of anti-money laundering procedures. Along with CFTC, the owners of BitMEX, Ben Delo, Arthur Hayes as well as Samuel Reed were also charged by the Department of Justice for violating the Bank Secrecy Act.

The announcement pointed out that the aforementioned trio was carrying out illegal leveraging services, futures, options, swaps on digital assets like Bitcoin [BTC], Ether [ETH], and other prominent cryptocurrencies since November 2014. The financial regulator further revealed that the exchange had garnered more than $1 billion worth of fees since 2014.

Soon after the CFTC charged the exchange with the case, BitMEX shared a press release to assure its users that it wasn’t in troubled waters. BitMEX went on to denounce the CFTC’s charges and suggested that the platform would continue to defend the accusations. The exchange affirmed that the latest news wouldn’t have an impact on the operations of the exchange. However, an off-cycle withdrawal would be processed at 8:00 UTC as well as 13:00 UTC on 2 October 2020.

The announcement further read,

“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”

BitMEX Faces Acute Losses

Despite its attempts to eliminate commotion in the crypto community, BitMEX failed to retain its users. Several online analytics platforms highlighted how the exchange was subject to huge losses since the CFTC and DOJ charges. Glassnode Studio reported that a total of 40,000 BTC was withdrawn from the exchange. The platform shared the same on Twitter,

While Bitcoin has been trading for $10,532.50, the aforementioned number of Bitcoins withdrawn from the exchange amounted up to a whopping $420 million. BitMEX went on to break several other records in terms of outflows. Glassnode also highlighted that a total of $243 million in BTC was withdrawn within a course of just one hour, making it the largest to date.

Additionally, the XBTUSD open interest had also taken a hit on the exchange. Prominent data analytics platform, Skew pointed out that the open interest was down by 20% since the news of the charges surfaced the internet.

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CFTC’s latest allegations have already begun taking a toll on the cryptocurrency exchange. The prolongation of this withdrawal spree could further cause a tremendous loss for BitMEX.

CFTC Charges 4 Men For Making Nearly $1 Million Via Bitcoin Scam

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Almost every technological or financial innovation is manipulated by scammers and hackers to make money easy. Every day, news of the scams or authorities busting these fraudsters surfaces in the crypto-verse. A prominent financial regulator charging four men for a recent crypto scam in the United States is the latest buzz in the crypto town.

Scammers Bag Nearly $1 Million

The Commodity Futures Trading Commission [CFTC] shared a press release highlighting its latest release. The financial regulator claimed that three men from Texas, Mayco Alexis Maldonado Garcia, Cesar Castaneda, and Rodrigo Jose Castro Molina, as well as Florida’s Joel Castaneda Garcia, were operating a fraudulent platform called the Global Trading Club [GTC]. CFTC has reportedly filed a complaint with the U.S. District Court of the Southern District of Texas.

All four men involved were charged for deceiving individuals to pour in money to speculate on the price movements of Bitcoin. The complaint underscored that a total of 27 people were prey to the scam and the alleged scammers were reported to have acquired about $989,000. The CFTC accusation also pointed out that the fraudulent operation ran a little more than a year from August 2016 to October 2017.

The press release further stated,

“[…] the defendants falsely represented to actual and potential customers that their business, named Global Trading Club (GTC), employed “master traders” who had years of experience trading “crypto currency,” and used “cutting edge trading robots” to trade Bitcoin for customers “24 hours a day, 7 days a week.”

Apart from this, a multi-level marketing scheme was put in place where the customers were promised a bonus for referring others. Furthermore, in an attempt to cover up their fraudulent business, the alleged fraudsters went on to post misleading statements online.

The CFTC added,

“The CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act and the Commission’s regulations, as charged.”

Despite being known for its decentralized nature, cryptocurrencies fall under the control of regulators around the globe. While authorities and regulators around the globe have been exploring the prospects for cryptocurrencies, news about crypto hacks could delay the mass adoption of crypto hacks.

CFTC Gives LedgerX Thumbs Up To Clear Non-Crypto Products

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Even though the cryptocurrency industry was created to steer clear of regulators and the regulations they impose, almost every digital asset platform, in the present day is required to undergo scrutiny. The Commodity Futures Trading Commission [CFTC] is one such financial regulator that keeps several crypto platforms in check. As per the latest updates, the CFTC has given a green signal to, Bitcoin-based derivatives exchange, LedgerX to explore more than just cryptocurrencies.

Going Beyond Crypto

The United States’ based crypto platform, LedgerX LLC was granted permission to allow carry out clearing services for fully collateralized futures, options on futures as well as swaps.  CFTC shared the document pertaining to the amended order of the LedgerX.

The document pointed out that LedgerX had sought an amendment to its original registration as derivatives clearing organization back in 2017. In January 2020, LedgerX further requested the CFTC to expand the product scope to futures as well as options on futures.

More recently, on 23 June 2020, LedgerX requested the elimination of the digital asset limitation. On Wednesday, the Commission shared a post on its official website affirming the approval of the same. The post further read,

“Under the amended order, LedgerX is authorized to provide clearing services for fully-collateralized futures and options on futures in addition to the previously authorized swaps, and will no longer be limited to clearing digital currency products.”

Several members of Crypto Twitter acknowledged the platform’s latest achievement and even went on to laud it. LedgerX announced the same to its community via Twitter. The tweet read,

The founder and the CEO of LedgerX pointed out that the CFTC’s approval was a “major turning point” for the derivatives exchange.

Off-late several non-crypto platforms seem to have been taking an interest in crypto. More recently, the Singapore Exchange as well as the Vienna Stock Exchange extended their support towards crypto and listed Bitcoin and Ethereum. However, it seems like LedgerX intends to explore the non-crypto world.