A New York federal court has ordered Patrick K. McDonnell of Staten Island, New York, and his company CabbageTech, Corp. d/b/a Coin Drop Markets (CDM), to pay over $1.1 million in penalties and restitution for defrauding customers through a virtual currency scheme. The judgment follows a four-day bench trial before Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York.
The CFTC lawsuit alleged that McDonnell and CDM engaged in a deceptive scheme from approximately January 2017 to July 2017, enticing customers to send funds and virtual currencies – including Bitcoin and Litecoin – with promises of expert trading advice and virtual currency purchasing/trading services. However, the court found that these promises were false, and McDonnell misappropriated customer funds.
Judge Weinstein’s 139-page decision described the actions as a “vicious defrauding of customers.” The court determined that the promised expert trading advice was never delivered, and customers who entrusted funds to CDM for trading never recovered their investments. McDonnell was found to have “ruthlessly misled customers and misappropriated their funds.”
Following the acquisition of customer funds, the defendants removed their website and social media presence, effectively ceasing communication with customers and leaving them with substantial losses. Neither McDonnell nor CabbageTech, Corp. was registered with the CFTC.
The CFTC initially filed a complaint against McDonnell and CDM on January 18, 2018, and a preliminary injunction was granted, preventing further violations of the Commodity Exchange Act (CEA). The court affirmed the CFTC’s authority to regulate fraud involving virtual currencies within interstate commerce. The total amount owed by the defendants, jointly and severally, is $290,429.29, with the remaining amount covering penalties and restitution to affected customers.
“As the court’s judgment makes clear, the CFTC will continue to act aggressively to identify bad actors involved in virtual currencies and hold them accountable,” stated James McDonald, the CFTC’s Director of Enforcement. “This case also shows the CFTC’s readiness to prove its case at trial.”
Source: CFTC.gov
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