The Commodity Futures Trading Commission (CFTC) has announced that it has filed a civil enforcement action against UK-based bitcoin trading and investment company Control-Finance Limited as well as its founder, Benjamin Reynolds.
The complaint, which was filed at the U.S. District Court for the Southern District of New York, claimed that from May 1 to October 31, 2017, the defendants defrauded more than 1,000 customers of at least 22,858.822 bitcoin—worth at least $147 million at the time.
Reynolds allegedly exploited growing public enthusiasm for bitcoin by asking customers to purchase and transfer bitcoin to Control-Finance.
He claimed that his expert virtual currency traders were able to post trading returns of up to 45 percent per month. Reynolds also claimed that his team was able to create safe havens for customers’ bitcoin deposits and protected them by using risk diversification methods.
“In reality, the defendants made no trades on customers’ behalf, earned no trading profits for them, and misappropriated their Bitcoin deposits,” said the CFTC in the published complaint.
Inefficient, confusing transactions
Control-Finance allegedly used unique single-use wallet addresses to carry out its misappropriation scheme. Deposits sent to these addresses were routed to other, pooled wallet addresses held by payment processors and exchanges located in North America, Europe, and Asia.
The CFTC complaint said that Control-Finance deliberately set up and used these inefficient and confusing transactions in order to hide their fraudulent activities. The agency also noted that when clients asked for withdrawals, Reynolds gave them funds illegally diverted from other clients’ accounts.
The complaint further alleged that Reynolds made fake account balance and profit figures that reflected profits from trades that never happened. The company also created weekly trade reports full of bogus trades and figures.
The CFTC is seeking civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and permanent injunctions against further violations of the federal commodity laws.