The US Commodity Futures Trading Commission (CFTC) has ordered ATM Coin creators to pay $4.25 million to settle a fraud case brought forward by the agency's Virtual Currency Task Force.
The US District Court for the Eastern District of New York has entered an order of default against Blake Harrison Kantor and Nathan Mullins, both from New York, alongside four companies -- Blue Bit Banc, Blue Bit Analytics Ltd., Mercury Cove Inc. and G. Thomas Client Services -- for "committing fraud and misappropriated client funds."
According to the US watchdog, Kantor, Blue Bit Analytics, and G. Thomas Client Services acted illegally as Futures Commission Merchants without registering with the CFTC.
The case, first filed last year, charged the group with fraud in connection to a binary options scam involving a cryptocurrency known as "ATM Coin."
The CFTC says that the defendants lured customers to invest in binary options, promising a return on their investment at set intervals.
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Binary options rely on what the CFTC calls a "yes/no" proposition. Generally, the price of assets relies on external factors, such as whether the stock price of a company reaches $X on a particular day. Once acquired, holders are not given the right to sell or purchase; instead, they receive a set amount of cash or nothing. As a result, binary options are sometimes considered "all or nothing" investments.
Some binary options are overseen by US regulators, but many online schemes are outside of regulatory laws, requirements, and protections.
In this case, investors were unaware that Blue Bit Banc computer software was used to tamper with data relating to their binary options -- ensuring that they were on the losing end of the yes/no proposition. Blue Bit Banc investments were also converted into ATM Coin, a cryptocurrency deemed "worthless" by the CFTC, despite Kantor's promises to the contrary regarding its value.
Furthermore, funds were sent to bank accounts in St. Kitts and Nevis in an attempt to make tracking difficult for investigators.
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The court has ordered the defendants to pay $4.25 million, including $846,405 in restitution, a penalty of $300,000 against Mullins, and a fine of $2.5 million against Kantor and the associated companies. Kantor and Mullins must also return $515,759 and $89,574, respectively, in funds that are considered ill-gotten gains.
Another company, New York-based Blue Wolf Sales Consultants, must return $463,097. This firm is owned by Kantor. In a related court case, Kantor pleaded guilty to conspiracy to commit wire fraud and obstructing an investigation. Kantor will now serve 86 months in prison.
The CFTC has previously issued a fraud advisory warning consumers of the risks associated with binary options trading.
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"The number of Internet-based trading platforms that offer the opportunity to purchase and trade binary options has surged in recent years," the CFTC says. "The increase in the number of these platforms has resulted in an increase in the number of complaints about fraudulent promotion schemes involving binary options trading platforms."
The watchdog warns that scam artists may refuse to honor cash withdrawals, refuse rewards or reimbursement, and may also use software to generate 'no' trades -- as in ATM Coin's case.
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