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CFTC Files Charges Against $10M Ponzi Scheme Involving Derivatives

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The Commodity Futures Trading Commission (CFTC) has charged Kentucky-based Turning Point Investments and its principal, William S. Evans, with running a trading Ponzi scheme that solicited at least $10 million from US investors.

The CFTC also obtained judgements against Evans’ wife as a relief defendant, to seize the funds she received from her husband’s fraudulent activities. She claimed the money was part of a business transaction for Turning Point, but the CFTC said Frances Evans failed to provide any documentation of a contract between her and the company.

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A relief defendant is a person or entity who has received funds or assets as a result of the illegal acts of the other named defendants. He/she is typically named because the plaintiff seeks injunctive relief to protect the sought funds or assets and apply them to any eventual recovery in the case.

Starting in September 2018, Turning Point Investments took the monies form investors to be supposedly placed in a pooled commodity fund that purportedly trade S&P commodity futures contracts and options.

To create the illusion of stability, the defendants allegedly prepared and distributed false account statements to fund participants, telling investors that they made steady gains from trading derivatives, according to the complaint.

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Based on the inflated profits, the defendants paid themselves several thousands of dollars in in fees, while in fact their trading account records reveal only infrequent and unprofitable trades. For new participants, they were assured to receive a double-digit guaranteed return, while they were actually duped into a Ponzi scheme.

Nearly all of the pool money was lost, according to the complaint that accuses the defendants of fraud, misappropriation, registration violations and issuing false statements.

If convicted, Evans could serve up to 20 years in prison.

The CFTC has asked the court to provide full restitution to defrauded pool participants, disgorgement of ill-gotten gains and to pay the appropriate civil monetary penalties. In addition to fiscal claims, the agency seeks permanent registration and trading bans and a permanent injunction from future violations of federal commodities laws.

“Evans allegedly paid some clients with non-existent profits in the manner of a Ponzi scheme while diverting other funds for his personal use. Although Evans promised participants that they would enjoy double-digit profits, the transactions he engaged in resulted in losses he failed to disclose. The complaint further alleges that Evans acted in a capacity requiring him to register with the CFTC as a commodity pool operator but failed to do so,” the CFTC stated in its filing.

Source: https://www.financemagnates.com/forex/regulation/cftc-files-charges-against-10m-ponzi-scheme-involving-derivatives/

Finance Magnates

Judge Tosses $53M Fraud Case Against Ikon Finance and Hantec Market

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A judge in the UK high court dismissed a breach-of-contract suit against both Ikon Finance and Hantec Markets where a heavyweight retail client was seeking $53.0 million in damages over the allegedly misappropriated funds.

Ikon Finance exited the retail forex market in 2017 following regulatory restrictions by the UK Finance Conduct Authority (FCA). At the time, Hantec acquired the retail client base of IKON Finance after the regulator said that the rival broker has inappropriate human and operational resources in place.

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Following this, a Jordanian resident named Hafez Fakhri Taji Al Farouqi accused IKON Finance of moving his account to Hantec without his consent, seeking nearly $11.6 million in misappropriated funds and damages. He also filed a lawsuit against Hantec for $42 million in civil damages, alleging the migration of his account took place without prior authorization.

Al Farouqi also claimed that both brokers secretly deducted unauthorized commission and introducer fees from his account. Another argument was that Hantec Markets closed his account without sending cancellation terms, giving reasonable notice, or enough time to make alternative arrangements.

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The litigation began in December 2019, but after a six-month investigation, a judge acquitted both brokers, saying it was “fanciful” to believe they had faked trades that caused Al Farouqi to incur substantial losses. The case was entirely tossed out because the evidence was too weak to support a conviction that IKON and Hantec conned the Jordanian investor or breached regulations when they closed out.

Hantec Markets responds

Back in October, Hantec Markets has strongly refuted all claims of Hafez, and the FCA-regulated broker is fighting back against each allegation. Specifically, the company said it’s neither obliged to continue their relationship or to explain for what reasons it closed any client’s account. It also denied that the retail trader had suffered any loss or damage as a result of its decisions and that it gave him a “reasonable” nine days’ notice before the closure of his account.

After doing a background check, Hantec added in its defense that it did not charge any commission from Al Farouqi’s accounts. The UK-based FX trading brand also tried to dismiss the suit on the grounds that the investor agreed to move his trading account after he ticked a dialogue box to accept Hantec’s terms and conditions.

Al Farouqi reiterated in its December that the broker didn’t follow good practices as a nine-day notice period did not give him an opportunity to respond if they misunderstood the facts of his situation.

As widely known, IKON Finance managed to avoid several lawsuits against its operations around the world, including those suing its NFA-licensed subsidiary in the US, IKON Global Markets.

Source: https://www.financemagnates.com/forex/brokers/judge-tosses-53m-fraud-case-against-ikon-finance-and-hantec-market/

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Finance Magnates

Vitalik Buterin Says Ransom Hackers Behind $5M-Fee ETH Transactions

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Two transactions spotted on the Chinese mining pool Spark Pool have stunned everyone in the Ethereum community over the last two days. While nearly 20,000 ETH worth $5.2 million was paid as the transactions fees, the value transferred was only 350 ETH worth less than $90,000 — and one of them was only 0.55 ETH or $133.

At glance, the crypto community suggested that the sender mistakenly mixed up the fields on the value of the transfer and the fee. Today, however, Ethereum’s Co-Founder Vitalik Buterin and China-based blockchain analytics company PeckShield floated the idea that a yet-to-be-disclosed exchange is being held to ransom by hackers who gained unauthorized access to its wallets.

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Criminals are thought to have captured partial permissions, such as server management or something similar. But since the exchange’s private key has a multi-signature verification, which help protect against theft by requiring multiple private keys to sign each outgoing transaction, they were unbale to send crypto holdings to their own wallets.

So, the unusual transactions that grabbed the community’s attention were carried out by the ransomware gang to blackmail the exchange and force them to send their chunk, otherwise they would continue to burn their assets though paying excessively high transaction fees.

Ethereum’s Co-Founder further explained that “Similar situations could happen in “scorched earth” games, including scorched-earth vaults aka “Moeser-Eyal-Sirer” vaults, as well as scenarios where hackers can slash but not steal staked funds”.

While the story is yet to be confirmed, the human error theory doesn’t make sense any more as if it was true with the first transaction, the second one might invalidate this assumption. In addition, it can easily be noted that wallet address sending the few ethers and paying generous gas price belongs to a crypto whale. The shipper’s wallet had over 21,000 ETH left in the address, worth more than $5 million, even after the $5.2 million transaction fee was paid out.

Further, the sender’s wallet has been very active all the time, showing several transactions almost every minute, which matches operations carried out by a trading venue.

Blackmail campaigns are not uncommon in the crypto space. A few months ago, Binance revealed that a pro-claimed hacker previously demanded 300 BTC from it for “withholding 10,000 photos that bear similarity to Binance KYC data.” After he refused to give the team any irrefutable evidence regarding the source of breach, Binance ended conversation, but the hacker then started distributing the KYC data online and to media outlets.

Source: https://www.financemagnates.com/cryptocurrency/news/vitalik-buterin-says-ransom-hackers-behind-5m-fee-eth-transactions/

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Finance Magnates

Estonia Tightens Checks on Crypto Firms, Cancels 500 Licenses

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The Estonian regulators have revoked licenses of 500 cryptocurrency firms, roughly 30 percent of total approved providers, as it continues to tighten its grips on risky activities.

The move comes as a series of scandals in Europe have undermined trust in authorities’ ability to tackle money laundering.

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Estonia, a Baltic state in north-eastern Europe, came under the spotlight after Danske Bank, Denmark’s biggest lender, was accused of watching $230 billion through a tiny Estonian branch.

Estonia was among the first jurisdictions in Europe to legalize crypto-related activities back in 2017. In less than three years since the country introduced licensing for companies operating in the cryptocurrency industry, the number of licenses issued has surpassed 1400.

The Estonian Financial Intelligence Unit (FIU), the regulator issuing the licenses, said the regulatory crackdown is not meant to curb cryptocurrency industry but rather regulate the field more thoroughly to prevent risks related to money laundering.

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So far, the FIU dropped the hammer largely on crypto firms that failed to start operations in Estonia within six months of getting a permit, Bloomberg reported, quoting Madis Reimand, who heads the Baltic country’s intelligence unit.

“This is a first step in tidying up the market, allowing us to take care of the most urgent issues by permitting operations only for companies that can be subjected to Estonian supervision and coercive measures,” Reimand added.

The regulator said that authorities in the Baltic country have learned lesson from the banking sector the hard way, and that they must now deal with new international risks, and cryptocurrencies are amongst the most urgent of these.

Furthermore, the Estonian government has passed a bill that tightens the regulation on granting licenses to crypto providers. Among other things, the application processing time was extended from 30 to 90 days, and the license fee has been increased from EUR 345 to EUR 3,300.

Crypto entities registered in Estonia will also need to incorporate in the country or open an Estonian branch of a foreign company.

Source: https://www.financemagnates.com/cryptocurrency/regulation/estonia-tightens-checks-on-crypto-firms-cancels-500-licenses/

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Japan Court Upholds Mt. Gox Ex-CEO Conviction for Tampering Records

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Mark Karpeles, the former CEO of the notorious Mt.Gox, has suffered a new blow after Japanese high court threw out his petition and upheld the conviction on charges of manipulating electronic data.

Another Japanese court cleared Karpeles last year of embezzlement and breach of trust charges, but was found guilty of the dubious data charges. In both cases, however, the court handed him a suspended sentence, meaning he wouldn’t have to serve jail time.

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While the French citizen claimed that he was just trying to reduce risks for the exchange’s users, Tokyo’s court said Karpeles had manipulated data to harm his clients, betraying their trust and abusing his engineering skills.

Japanese prosecutors had initially demanded 10 years in prison as they said Karpeles was guilty of mixing his personal finances with Mt.Gox’s assets in order to conceal the exchange’s losses to hackers. The court handed him down a two and a half years jail sentence, but he doesn’t not have to serve this term unless he commits another offence within four years.

Mt. Gox ex-CEO asks US to toss fraud lawsuit

Karpeles also tried to shut down the class action lawsuit against him in the US which was filed by the last remaining plaintiff, Gregory Greene.

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Karpeles argued the court to dismiss the last remaining fraud charge on the grounds that the ex-Mt. Gox customer has changed the factual basis underlying his claims. Greene voluntarily dismissed two other claims over Karpeles’ handling of the exchange and leaving major security holes that led to future hack attempts.

Gregory Greene filed a complaint on behalf of bitcoin users in a US district court in Philadelphia, accusing Mt. Gox and its CEO Mark Karpeles of negligence and fraud for not protecting the exchange from theft.

Greene, who claimed his own bitcoin holdings were about $25,000, said Mt. Gox failed to provide its users with the level of security protection for which they paid.

However, Karpeles claimed the court lacks jurisdiction and filed a motion asking the judge to dismiss the lawsuit.

Mt. Gox went offline in 2014 in the single biggest setback in the history of Bitcoin after 850,000 bitcoins were stolen in a hacking attack. Under suspicious circumstances, the Japanese exchange claimed it had lost track of about 750,000 bitcoins belonging to customers and another 100,000 of its own, but later said it had found 200,000 bitcoins.

Mt. Gox is now undergoing bankruptcy rehabilitation in Japan, overseen by court-appointed trustee Nobuaki Kobayashi.

Source: https://www.financemagnates.com/cryptocurrency/news/japan-court-upholds-mt-gox-ex-ceo-conviction-for-tampering-records/

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