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FTC Halts Alleged Cryptocurrency Scheme

At the request of the Federal Trade Commission, a federal court has halted the activities of four individuals who allegedly promoted deceptive money-making schemes involving cryptocurrencies.  These alleged schemes falsely promised that participants could earn large returns by paying cryptocurrency such as bitcoin or Litecoin to enroll in the schemes.

In a complaint, the FTC alleges that three defendants – T. Dluca, L. Gatto, and E. Pinkston – promoted chain referral schemes known as Bitcoin Funding Team and My7Network.  Using websites, YouTube videos, social media and conference calls, the defendants allegedly promised big rewards for a small payment of bitcoin or Litecoin.

According to the FTC, the defendants claimed that Bitcoin Funding Team could turn a payment of the equivalent of just over $100 into $80,000 in monthly income.  The FTC alleges, however, that the structure of the schemes ensured that few would benefit and that the majority of participants would fail to recoup their initial investments.

The FTC also alleges that Bitcoin Funding Team and My7Network participants could only generate revenue by recruiting new participants and convincing them to also pay cryptocurrency.  For example, Bitcoin Funding Team participants were required to make an initial bitcoin payment to an earlier participant and pay a fee to Bitcoin Funding Team.  With these payments, participants were eligible to recruit new members and receive payments from them. Promoters claimed participants could earn bigger rewards if they paid additional bitcoins.

“This case shows that scammers always find new ways to market old schemes, which is why the FTC will remain vigilant regardless of the platform – or currency used,” said Tom Pahl, Acting Director of the FTC’s Bureau of Consumer Protection.  “The schemes the defendants promoted were designed to enrich those at the top at the expense of everyone else.”

The FTC alleges that a fourth defendant promoted Bitcoin Funding Team and another deceptive cryptocurrency scheme, Jetcoin.  Jetcoin also promoted a recruitment scheme and additionally promised investors a fixed rate of return on their initial bitcoin investments as a result of bitcoin trading.  In a series of promotional calls, this defendant allegedly claimed Jetcoin participants could double their investment in 50 days.  In reality, the FTC complaint alleges, the scheme failed to deliver on these claims and ceased operation within two months of launching.

In its complaint, the FTC charged that the defendants violated the FTC Act’s prohibition against deceptive acts by misrepresenting the chain referral schemes as bona fide money-making opportunities and by falsely claiming that participants could earn substantial income by participating in the three schemes.

As requested by the FTC, the court has issued a temporary restraining order and frozen the defendants’ assets pending trial.

The FTC has also announced the formation of a blockchain working group.

According to the agency, the group has at least three goals:

  1. Build on FTC staff expertise in cryptocurrency and blockchain technology through resource sharing and by hosting outside experts;
  2. Facilitate internal communication and external coordination on enforcement actions and other related projects; and
  3. Serve as an internal forum for brainstorming potential impacts on the FTC’s dual missions and how to address those impacts.

Contact a Federal Trade Commission advertising compliance attorney if you would like to learn more about this topic, or if you are the subject of a local, state or federal regulatory matter.


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Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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