A cryptocurrency trading firm and its principal have been fined as well as banned from any future trading in digital assets in a case filed by the Commodity Futures Trading Commission (CFTC).
In the landmark case targeting Cabbage Tech aka Coin Drop Markets and the firm’s principal, Patrick K. McDonnell, the New York Eastern District Court on Wednesday sided with the CFTC, who had accused the defendants of defrauding clients.
Initially reported by Law 360, U.S. District Judge Jack Weinstein ruled that Cabbage Tech and McDonnell flouted the Commodity Exchange Act by engaging in “egregious intentional violations” of federal regulations and law.
Over $1.1 Million in Penalties and Compensation
Besides a permanent injunction being slapped on the defendants, the defendants will also be required to pay a fine of approximately $1,161,716 – $871,287 in penalties and $290,429 in restitution.
According to Judge Weinstein, the evidence that was presented before the court proved that Cabbage Tech and McDonnell engaged in a fraudulent scheme last year between January and July. Among the revelations included the fact that while McDonnell gave the impression that Cabbage Tech was a successful firm with several employees and offices, it was, in fact, a one-man operation fully-owned and run by the principal from a home basement in Staten Island, New York.
The scheme came to an end last year in June when McDonnell claimed that Coin Drop Markets had been hacked before posting a message on the firm’s website indicating that, as a result of the attack, it would be suspending its services. However, the court found that no hacking took place and it was the defendant who shut down the site as well as other digital properties before cutting off communication with clients.
Preying on ‘Bitcoin Fever’
As CCN reported earlier in the year, the CFTC brought the case against Cabbage Tech in January, alleging that the defendants had promised to offer trading advice to customers only to end up stealing from them.
“As alleged, the Defendants here preyed on customers interested in Bitcoin and Litecoin, promising them the opportunity to get the inside scoop on the next new thing and to benefit from the trading acumen of a supposed expert,” the Director of Enforcement at the CFTC, James McDonald, said at the time. “In reality, as alleged, customers only bought into the Defendants’ fraudulent scheme.”
During the litigation period, McDonnell appeared pro se (on his own behalf) since he claimed he couldn’t afford a lawyer. This was despite attempts by the court to impress upon him the need for counsel.
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