CFTC slams My Big Coin’s efforts to avoid responsibility for $6m fraud

The United States Commodity Futures Trading Commission (CFTC) continues to affirm that it has jurisdiction to take action against virtual currency scammers. This stance was backed by Judge Jack B. Weinstein of the New York Eastern District Court in March this year, as the Judge ruled that virtual currencies like Bitcoin are commodities and, hence, the CFTC is the regulator for the segment. The CFTC has voiced its intentions to use the Court’s ruling in other cases targeting virtual currency scams, including the case against My Big Coin Pay.

Randall Crater, Mark Gillespie, John Roche, Michael Kruger, My Big Coin Pay, Inc., and My Big Coin, Inc., Mark Gillespie, who stand accused of operating a virtual currency fraudulent scheme, through which they scammed at least twenty-eight people out of more than $6 million, have challenged the CFTC regulatory powers over the cryptocurrency segment. The CFTC has now responded to this motion calling it meritless.

Let’s recall that, under the allegations, since at least January 2014, the defendants have engaged in a fraudulent virtual currency scheme in which they solicited customers to purchase a fully-functioning virtual currency, MBC, by repeatedly making false and misleading claims about MBC’s value, usage, trade status, and financial backing.

Defendants’ fraudulent scheme involved My Big Coin, a virtual currency whose name sounds like Bitcoin, a functionally similar and well-known virtual currency. The defendants pitched their virtual currency as a particular item that was separately identifiable, unique, and moveable from one wallet or owner to another and represented that each individual MBC could be bought, sold, donated, and used to buy products worldwide. These representations, however, were false.

Defendants’ fraud involved making material misrepresentations and omissions to customers about MBC via email, websites, YouTube, press releases, social media, and in person. For instance, the defendants lied that MBC was backed by millions of dollars in gold, and would be used to stabilize the economies of 22 countries, giving the illusion that MBC was a safe bet.

According to the defendants, MBC does not constitute a commodity under the Commodity Exchange Act (CEA). The CFTC says that it does.

According to the CFTC, virtual currencies like MBC fall within the separate category of “commodities” under the Commodity Exchange Act : “all other goods and articles”. The definition of commodity is intended to be expansive, covering asset categories from agricultural commodities; to natural resources such as oil, gas, and metals; to services, rights, and interests; and more. Moreover, as a “good” or “article,” MBC is a “commodity” by definition regardless of whether futures contracts for it exist.

In addition, the CFTC notes that Congress defined commodities under the Act categorically, not by type, grade, quality, brand, producer, manufacturer, or form. For example, Congress included “wheat,” “livestock,” and all “fats and oils” within the definition of “commodity.” Congress did not separately identify the types of wheat (e.g., hard red spring, soft red winter), livestock (e.g., cows, hogs), or fats and oils (e.g., vegetable or animal) that exist. Similarly, oil and natural gas are “commodities” under § 1a(9) regardless of by whom or where the oil or gas is extracted or delivered (e.g., crude oil from west Texas or Prudhoe Bay in Alaska). Thus MBC is commodity.

Further, the defendants’ interpretation that MBC should be left outside of CFTC’s oversight because only Bitcoin underlies a futures contract, whereas MBC does not, is said to lead to absurd results. According to the CFTC, the Act cannot be read to allow a defendant who is in the virtual currency business to lie, cheat, and steal when it comes to virtual currencies similar to Bitcoin, which do not underlie futures contracts, but not when it comes to a virtual currency underlying a futures contract, like Bitcoin.

Regarding the judgement that cemented CFTC’s right to prosecute virtual currency scams, the regulator notes that “the court went to great lengths to describe and define Bitcoin, and virtual currency generally, identifying common characteristics including that they are digital assets used as a medium of exchange, stored electronically in wallets, exchanged online through a peer-to-peer system, and use cryptographic protocols to secure transactions recorded on publicly available decentralized ledgers”. Thus, according to the CFTC, the court’s holding is not limited only to Bitcoin, but extends to other virtual currency, like MBC, that share these characteristics.

The case, captioned Commodity Futures Trading Commission v. My Big Coin Pay, Inc. et al (1:18-cv-10077), continues at the Massachusetts District Court.