CFTC has trouble locating director of fraudulent crypto scheme Control-Finance - FinanceFeeds

CFTC has trouble locating director of fraudulent crypto scheme Control-Finance

Maria Nikolova

The US regulator understands that an investigation in South Korea is ongoing, but to date the prosecution team there has not been able to locate Benjamin Reynolds either.

About six months after the United States Commodity Futures Trading Commission (CFTC) launched an action against fraudulent cryptocurrency scheme Control-Finance Limited and its Director Benjamin Reynolds, the regulator is pushing for more time to effect service on the defendants, as it has trouble locating Reynolds.

On January 3, 2020, the Commission filed a motion with the New York Southern District Court asking the Court for the entry of an Order

  1. authorizing service of process on Defendant Benjamin Reynolds by publication in The Daily Telegraph, and

  2. extending for sixty days the time limit by which the Commission must effect service on Reynolds and Control-Finance.

In a memorandum accompanying the motion, the CFTC explains that it has diligently attempted to serve Reynolds. Shortly after filing the Complaint (on or about July 17, 2019), the Commission retained Legal Language Services, a litigation support firm, to arrange for service on Reynolds and Control-Finance. LLS engaged a solicitor authorized by the Central Authority for England and Wales to personally serve Reynolds and Control-Finance at their respective addresses listed in the incorporation application Reynolds filed with the UK Registrar.

On July 31, 2019, a process server operating under the solicitor’s supervision attempted to personally serve Reynolds at 12 Richmond Street, Manchester, England M1 3NB – the address he listed as his “service address” in Control-Finance’s incorporation papers. Upon arriving in Manchester, the process server discovered that the address did not actually exist, or at best corresponded to an office building that had long been abandoned and boarded-up.

Also in July 2019, a CFTC staff member attempted to email the Complaint, the Summonses, the Electronic Case Filing Rules for the Southern District of New York, and the Court’s Individual Practices to the only known email addresses associated with Reynolds and Control-Finance: [email protected] and [email protected] The staff member, however, received a bounce-back message indicating that the email could not be delivered because of an “unknown address error.”

The CFTC has also learned from investors based in South Korea that the Ulsan District Prosecutors’ Office in South Korea is investigating the scheme run by Control-Finance. CFTC staff spoke with a contact in South Korea’s Supreme Prosecutors’ Office about that investigation in October 2019. Through additional communications with the Supreme Prosecutors’ Office, the Commission understands that the investigation in South Korea is ongoing, but to date the prosecution team there has not been able to locate Reynolds.

The CFTC made other attempts to contact Reynolds, including via phone, but those were not successful.

Accordingly, despite the CFTC’s efforts, Reynolds’s whereabouts are currently unknown.

The CFTC Complaint alleges that, since at least May 1, 2017, through the present, Control-Finance Limited and Reynolds exploited public enthusiasm for Bitcoin by operating a fraudulent scheme to misappropriate at least 22,858.822 Bitcoin, which reached a valuation of over $147 million, from more than 1,000 customers.

From at least May 1, 2017, through October 31, 2017, the defendants solicited customers to purchase their own Bitcoin with cash and thereafter deposit their Bitcoin with the defendants. To lure customers to transfer Bitcoin to them, the defendants made a raft of misrepresentations – for instance, they claimed that they employed expert virtual currency traders who earned guaranteed daily trading profits on customers’ Bitcoin deposits.

Further, the defendants diverted portions of new customers’ Bitcoin deposits to other customers in the manner of a “Ponzi” scheme, falsely representing that these misappropriations were in fact profits generated from virtual currency trading.

Defendants used the Control-Finance website, as well as social media websites including Facebook, YouTube, and Twitter, to construct an elaborate pyramid scheme they called the Control-Finance “Affiliate Program.”

On or around September 10, 2017, the defendants suddenly terminated operations by removing the Control-Finance website from the Internet, halting payments to customers and Affiliate Program members, and deleting advertising content from the defendants’ Facebook, YouTube, and Twitter accounts.

The defendants, however, continued to claim, through email and Facebook that they would make all customers whole by returning their Bitcoin deposits, minus any prior payments, by late October or November 2017.

In reality, the defendants laundered nearly $150 million in misappropriated Bitcoin through thousands of circuitous blockchain transactions. The defendants routed bulk of these transactions through wallet addresses that the defendants opened at CoinPayments of Vancouver, Canada.

In this action, the CFTC seeks civil monetary penalties and ancillary relief, including but not limited to permanent trading and registration bans, restitution, and disgorgement.

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