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CFTC Uncovers Ponzi Scheme in My Big Coin Pay Cryptocurrency

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U.S. regulators have stepped up their surveillance of crypto fraud by filing formal complaints against My Big Coin Pay, a digital currency that funneled millions of dollars to the operators in an apparent Ponzi scheme.

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Formal Complaints Filed

The Commodity Futures Trading Commission (CFTC) has lodged complaints against Randall Crater and Mark Gillespie, who allegedly used funds generated from the My Big Coin Pay ICO to purchase real estate, jewelry and vacations. Regulators said a total of $6 million was “misappropriated” and used to buy indulgences. In an attempt to cover up the Ponzi scheme, the cryptocurrency’s operators tried to issue additional tokens.

The U.S. commodities regulator filed the case on Jan. 16, citing misappropriation charges that include “transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.”

According to the CFTC filing, the operators of the cryptocurrency made several misleading claims to lure unsuspecting investors. This included false claims that the cryptocurrency was actively traded on the major exchanges, and that it had daily price quotes. The scam coin’s operators also said they were supported by major companies like MasterCard. None of these assertions were true.

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Regulators described My Big Coin Pay’s results as “illusionary,” and said the setup took money from investors fraudulently.

Regulators Step Up Oversight Efforts

The CFTC is one of two main U.S. regulatory bodies tackling the growing and often mischievous world of cryptocurrency. The Securities and Exchange Commission (SEC) is also scrutinizing token sales for possible violation of federal securities laws. Several funds have shelved plans for bitcoin ETFs on grounds that the SEC would not approve the application.

As one might expect, the CFTC is handling several cases of fraud involving cryptocurrency. Just last week, it filed fraud charges against three other crypto operators, according to Engadget, a technology news portal.

The commodities regulator is also facing criticism for allowing the CME and CBOE exchanges to launch bitcoin futures. Opponents of the move, which include the Futures Industry Association (FIA), say bitcoin futures may introduce unwanted complications to the clearing process.

Meanwhile, fraudsters have permeated every corner of the ICO market in hope of stealing a slice of an ever expanding pie. Coin offerings are generating record inflows at the moment, with startups easily raising tens of millions of dollars on the back of a whitepaper and PR campaign. Although the market is scrutinizing ICO projects much more closely, huge appetite remains. Some companies are said to be rushing their crowdsale while the regulatory climate is still favorable.

On the other side of the token raise, hackers are stealing hundreds of millions of dollars from ICOs, according to new research by big-five consulting firm Ernst & Young.  The researchers concluded that nearly $400 million in ICO funds raised last year were stolen through phishing and other common tactics.

The report indicated that “flawed token valuations, unclear regulations, heightened hacker attention and congested networks” were the biggest catalysts behind the widespread security breaches. Clearly, this is one corner of the financial market regulators will need to monitor much more closely.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Parity Wallet’s ICO Passport Services Are Shutting Down

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Parity Wallet has succumbed to EU regulatory pressure and is shutting down it’s PICOPS services on May 24th, 2018.

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EU Crackdown

PICOPS, a service which allowed customers to associated a single Ethereum address with their identity to simplify KYC requirements, allegedly due to the more stringent requirements of the EU’s new GDPR legal framework.

The Parity Wallet team itself posted a statement saying, “We are looking at ways of resolving the uncertainty and making PICOPS compliant with GDPR while keeping it useful. However, as things stand the solutions we have identified restrict the service to a very limited set of features.

Because of this, the significant resources required to make PICOPS GDPR-compliant, and the fact that PICOPS is not part of our core technology stack, we have decided to discontinue the service despite overwhelming market needs and demand.”

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The team remained open to restarting the service in the future however, stating, “These challenges make running a service like PICOPS more difficult. We are looking at ways of resolving the uncertainty and making PICOPS compliant with GDPR while keeping it useful. However, as things stand the solutions we have identified restrict the service to a very limited set of features.

Because of this, the significant resources required to make PICOPS GDPR-compliant, and the fact that PICOPS is not part of our core technology stack, we have decided to discontinue the service despite overwhelming market needs and demand. PICOPS’s deprecation does not mean that we are going to wait and see what happens to blockchains under regulation.”

Ethereum founder Vitalik Buterin tweeted his disappointment with decision on Friday, but didn’t go into specifics about the state of EU regulation.

Based on the company’s statements, it seems likely that Parity Wallet will continue to be an active voice in trying to steer more crypto-friendly regulations into law. But the shuttering of an incredibly useful tool could be interpreted as a byproduct of international government’s growing hostility to all things blockchain.

Governments around the world are still in the very early stages of understanding, defining and adequately regulating cryptocurrencies. The state of crypto regulation varies wildly across the board, with some nations recognizing cryptocurrency as money and others banning them outright.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Fraudulent ICOs Have Raised More than $1 Billion: WSJ

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ICO scams are said to have raised in excess of $1 billion since the cryptocurrency boom began, according to a new report published by The Wall Street Journal. Though the findings will likely be contested by investors, the report provides compelling evidence that a large number of coin offerings rely on fraudulent tactics to attract investors.

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The Rise of the “Shitcoin”

Of the 1,450 initial coin offerings (ICOs) reviewed by WSJ, 271 were flagged for potential fraud. Combined, these projects generated nearly $1.1 billion in funding from investors who bought into dubious claims about guaranteed returns and huge ROI. That represents 21% of the total amount raised across the 1,450 projects, which are believed to encompass most of the ICOs targeting English-speaking investors.

Since 2017, ICOs are said to have generated more than $9 billion globally, according to data provided by Satis Group.

Although fraud isn’t always seen as black and white, WSJ analysts outed projects with plagiarized investor documents, promises of over-sized gains and incomplete or fake executive teams.

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In the crypto world, these token projects are often referred to as “shitcoins.” A shitcoin refers to any altcoin that is said to be worthless because it lost value, failed to generate interest or was not created in good faith.

ICO Market: Bad Press Continues

This isn’t the first time researchers have drawn troubling conclusions about the ICO market. By February, it was shown that nearly half of all ICOs launched last year had already failed. A further 13% were labelled as “semi-failed.”

Deceptive ICOs are only one part of the problem. According to Ernst & Young, roughly 10% of ICO funds have been lost or stolen by cyber criminals looking to capitalize on the insatiable demand for digital currency projects.

ICOs themselves are also struggling to meet their funding-cap goals. By November of last year, only one-in-four ICO projects reached their fundraising target compared with 90% in June.

Token raises have generated nearly $4.6 billion in funding over the last five months, but funding amounts have declined sharply since the year began. The month of May is shaping up to be one of the smallest hauls for token projects since the crypto boom began in early 2017.

Earlier this month, Australia became the latest country to target “deceptive” ICO projects that promote “misleading or deceptive” statements.  An inquiry by the Australian Securities and Investment Commission (ASIC) resulted in several companies either modifying their ICO projects or halting them entirely.

The U.S. Securities and Exchange Commission (SEC) has been highly critical of ICO projects, arguing that all of them meets the traditional definition of a security.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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‘Bitcoin Will Reattain Its Former Highs’ – CoinShares Exec

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CoinShares Chairman Danny Masters isn’t deterred by the recent pullback in the bitcoin price, instead believing there will be a comeback and the leading cryptocurrency will revisit its former highs in 2018. Masters was present at the Consensus 2018, which wrapped up in New York on Wednesday and which did little to prop up the bitcoin price this week. Nonetheless, he characterized it as “very exciting week,” one in which the “new financial paradigm” is being built.

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The bitcoin price has taken investors on a roller coaster ride in May after closing in on the $10,000 level again only to fall to about $8,300, which is where it’s hovering at press time. Any short-term movements in the bitcoin price, however, don’t seem to phase Masters, according to an interview with CNBC.

CoinShares launched the industry’s maiden bitcoin and Ethereum exchange-traded products several years ago, when “cryptocurrency was really small,” as Masters explained. And while the cryptocurrency market has come a long way since then, as evidenced by some 8,000 blockchain fans who attended this week’s blockchain conference, the next phase of maturation isn’t likely to unfold until institutional capital comes off the sidelines and into cryptos, blockchain startups, etc.

Next Up: Institutional Investors

Masters offers a unique perspective, having previously spent two decades watching from JPMorgan’s global energy trading desk as the commodities markets rose a logistics business into a high-frequency trading market with derivatives and the like. He explained on CNBC that in order for the bitcoin price to rally and reattain its high, which was close to $20,000 in mid-December, several milestones must occur.

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“We need to see this [cryptocurrency] structure continue to build. We need to see the custody solutions come and be provided. We need indices and we need performance measures where we can actually start to … measure our performance We need to do more mature work around the ICOs, so that post ICO we have a token life cycle. And just give investors more clarity, better expectations, more transparency,” said Masters.

As for the custody solutions, CoinShares is doing its part. CoinShares’ parent company Global Advisors Holdings just unveiled a joint venture with Japan’s Nomura to facilitate digital asset custody services for institutional investors. Developments like these on custodial services as well as strides made by the likes of Coinbase on the institutional front are what Masters described as the “bedrock of what institutions need… in order to go forward.”

For now, it remains the “very early days”, according to Masters, who reflected back to when high-frequency trading came on the scene in the commodities markets, adding, “We’re nowhere near that yet.”

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 6 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. Full disclosure, she's invested in bitcoin.




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