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The U.S. Commodity Futures Trading Commission is an independent agency of the US government that regulates futures and option markets.

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Default ruling in favor of CFTC may not garner restitution from Diamonds Trading Investment House

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes. As always, Rosario summaries are “NMR” and Palley summaries are “SDP". [related id=1] CFTC v. Diamond Trading Investment House, et al., Case №4:18-cv-00807-O (N.D. Tex. filed June 28, 2019) [NMR] You miss 100% of the shots you don’t take. In life, in sports, in business, and, yep you guessed it, in law. This recent order and default judgement out of the Northern District of Texas is a… well, it’s about what we’ve come to expect in this space. Before we dig in to the facts of the case let’s talk a little about default judgments. You can probably infer from the name that a default judgment is a judgment that is entered by… default. This sort of thing happens when one party in a case moves for judgment in their favor, and the other party, typically, doesn’t respond. The Court metaphorically shrugs it’s shoulders and says “Cool, I guess you win. Next!” That last part doesn’t really happen, but it would be funny. This case started on Sept. 28, 2018, with the Commodities and Futures Trading Commission (CFTC) filing a complaint against Defendants John Doe 1 aka Morgan Hunt dba Diamonds Trading Investment House (“Hunt”) and John Doe 2 aka Kim Hecroft dba First Options Trading (“Hecroft”). The CFTC attempted to serve the defendants via their email addresses, and then when they never responded to the complaint the CFTC filed a motion, which the court has now granted, giving the CFTC everything they wanted. There is one catch in all this. It appears that no one knows where the defendants are, or if it is multiple defendants, or just one person. What? How did this even get started then? Well, an aggrieved buyer alerted the CFTC to what the defendants were up to, and they were up to a lot. Given that this is a default judgment, the following alleged facts are taken as true by the Court. An individual referred to as L.M. in the order was a victim of fraud perpetuated by Hunt. Starting in 2017, Hunt took a variety of steps to create a fake forex trading business. One such step was a Facebook post that said “It’s the bitcoins diamonds exchange. Awesome profits generated from it.” A message that Hunt sent to L.M. described his investment strategy as “the Bitcoins Diamonds Trust” and that it “guarantees a passive investment return of 40–60% after a 30 day trading cycle.” L.M., who was on Social Security disability decided this was too good to pass up, and agreed to invest with Hunt. Hunt directed L.M. to start purchasing bitcoin, which he of course then had L.M. transfer to Hunt’s own bitcoin wallet. Hunt sent a series of fake trading return documents to L.M. showing profits. Then L.M. wanted to withdraw some cash, and things started to go south. Hunt claimed that L.M. shouldn’t withdraw, because of tax implications related to the CFTC. Hunt apparently forged a CFTC document, using their logo and letterhead, to try and convince L.M. that he shouldn’t make a withdrawal. L.M. eventually got suspicious and contacted the CFTC himself, which set all of this in motion. What about Hercroft? Well, Hunt is probably Hercroft. Why? Well, for one thing “[d]uring the Relevant Period, Hecroft used some of the same IP addresses to log into his [gmail] account that Hunt used when logging into his [gmail] account and his “Morgan Hunt” Facebook page.” Hecroft ran a similar scam on a person named D.P. From the get go D.P. was suspicious of Hecroft and demanded proof of his identity, which Hecroft satisfied by providing a forged California driver’s license, and a fake trading license. Hecroft also produced a fake “Certified CryptoCurrency Expert” license he claimed was issued by the Blockchain Council. The Blockchain Council does not do licensing. D.P. was apparently satisfied and started transferring some bitcoin to Hecroft. Eventually, D.P. wanted to withdraw funds and Hecroft sent the same forged CFTC document he sent to L.M. making the same false tax argument. As D.P. pressed the issue, Hecroft started sending letters purporting to be from the General Counsel for the CFTC to dissuade D.P. from contacting the CFTC directly. What happens now? The Court permanently enjoined Hunt/Hercroft, and anyone else who helped them, from engaging in these sorts of activities again. Hunt/Hercroft are also ordered to pay restitution and civil penalties. A process is laid out for them to comply with the order. Will Hunt/Hercroft comply? Probably not, and unfortunately the odds of L.M. and D.P. seeing their funds again seem to be pretty low. The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part III of this week's analysis, Crypto Caselaw Minute, is above.
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trueDigital to acquire CFTC registrations from trueEX to launch crypto derivatives exchange

CryptoNinjas - Bitcoin, Cryptocurrency & Blockchain Asset SourcetrueDigital, a provider of financial technologies and products for traditional and digital asset markets, today announce dit has reached an agreement in principle to acquire, subject to CFTC approval, the Designated Contract Market (DCM) and Swaps Execution Facility (SEF) registrations held by trueEX. trueDigital plans to launch a U.S. regulated cryptocurrency derivatives exchange with these […]

Bitcoin fraudsters who impersonated CFTC officers fined by Texas court

Texas' federal court has fined two individuals who ran a fraudulent bitcoin operation. The defendants, Morgan Hunt and Kim Hecroft, were ordered to pay $180,000 each in civil monetary penalties and restitution to the victims, although how much they pay back will depend on their available funds. Between January 2017 and September 2018, the two men run a fraudulent scheme, soliciting bitcoin via Facebook and email. The men misled their clients about their experience as traders and presented them with a false investment portfolio. They told their customers they couldn’t withdraw their profits without first paying taxes to the CFTC, despite the fact the institution (the Commodity Futures Trading Commission) does not collect taxes. They also posed as CFTC investigators and sent out forged documents purportedly written by the CFTC’s General Counsel. James McDonald, CFTC Director of Enforcement, warned the public, “retail customers should exercise caution before buying or trading cryptocurrencies on unfamiliar Internet websites or social media."
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CFTC Points Out Social Media Attacks That Flaunt Wealth in Binaries

Commodity Futures Trading Commission (CFTC) of the US recently commented on the rising number of financial scams perpetrated via social media. The regulator warned retail customers of the pitfall in a document released Wednesday. The CFTC warns investors The regulator wrote that fraudulent profiles on social media are very easy to spot. These profiles don’t shy away from flaunting their wealth or bragging about their massive win percentages. They are also known for posting pictures of exotic vacations, mansions, and sports cars. It is difficult to come across facts, credentials, background, and experience of the person. Most of these scammers are offering products like binary options to their users or providing educational courses or trading signals. According to the CFTC, these frauds occur incrementally. A user is first asked to register on the fraudster’s website using their email address. Later, they receive a welcome email with an invitation to join a webinar or get a free trial during which they can receive personalized help. These primary introductions are used to make people commit an initial payment and also build a rapport with them. Once payment is made, the users are within the clutches of these scamsters who ask them for more money in case they make a profit. If they make a loss, they are offered additional courses, classes, upgrades or loss insurance. Follow up scams are common too If you have been conned by these social media fraudsters, you could be targeted again. The CFTC also highlighted the same by finding out prior victims. The fraudsters suggest that they are suing the company that defrauded investors and ask for the payment of legal services. There is an entire brigade of fraudsters called recovery experts who promise victims of financial fraud that they will be able to receive their money back from the company. These websites usually bait users with the help of binary options articles. They post comments on articles related to binary options claiming that they recover losses using services of a particular company. The users, who may be desperate to recover their funds, click the links to the fraud recovery expert’s website and pays him to get the funds back. In this case, too, the fraudster vanishes with the money, never to be seen again. The ESMA has launched temporary ban on binary options in Europe and several European regulators the FCA is now imposing a permanent ban on binary options. The post CFTC Points Out Social Media Attacks That Flaunt Wealth in Binaries appeared first on - Daily Cryptocurrency and FX News.
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