CFTC Enforcement Action: $1.14 Million Penalty and 15 Months Jail Sentence for Crypto Trader

On 9 November 2018, the U.S. Commodity Futures Trading Commission (CFTC) announced that it had issued an Order filing and settling charges against crypto trader Joseph Kim, requiring him to pay a penalty of over $1.1 million for "a fraudulent Bitcoin and Litecoin scheme." Furthermore, Kim was given a 15 months sentence by the U.S. District Court for the Northern District of Illinois.

Kim, a 24-year-old University of Chicago economics graduate, was employed as a trader at Consolidated Trading, a Chicago-based proprietary trading firm from approximately July 2016 through November 2017 (when his employment contract was terminated).

According to the CTFC, here are the summarized facts of the case:

  • "Between September and November of 2017, Kim misappropriated approximately 980 Litecoins and 339 Bitcoins from his employer to cover personal trading losses in his own personal virtual currency trading accounts."
  • "When questioned by his employer about the transfers, Kim concealed his misappropriation and provided false explanations for the transfers."
  • "Kim’s employer suffered a loss of approximately $601,000 as a result of Kim’s scheme."
  • "After Kim ’s employment was terminated, he fraudulently solicited approximately $545,000 from at least 5 individuals between December 2017 and March 2018 to continue trading virtual currencies in an ill-fated attempt to cover his previous losses."
  • "In soliciting customers, Kim made a number of false statements, including that he left his employment on his own terms and that he would invest funds in a low-risk arbitrage virtual currency strategy."
  • "Kim lost all $545,000 of the customers’ funds trading virtual currencies in his personal trading accounts." (CFTC says that he made the losses by making "high-risk, directional bets on the movement of virtual currencies", and concelaed them by "sending false account statements to customers reflecting profitable trading.")

CFTC's press release says that "Kim was able to misappropriate the Firm’s Bitcoin and Litecoin through a series of transfers between the Firm’s accounts and Kim’s own personal accounts", and that when Kim was questioned about the missing LTC and BTC, he "falsely represented that there were security issues with a virtual currency exchange that necessitated transfers into various accounts." 

According to the Order, "virtual currencies such as Bitcoin and Litecoin are encompassed in the definition of 'commodity' under Section 1a(9) of the Commodity Exchange Act, and the Commission used its authority under Section 6(c)(1) of the Act and Regulation 180.1 to take action against Kim, who admitted to the findings and conclusions in the Order, and submitted an Offer of Settlement, which the Commission decided to accept.

In addition to "requiring Kim to pay $1,146,000 in restitution to his company and customers", the Order "imposes permanent trading and registration bans on Kim, including virtual currency trading and solicitation bans, and permanently enjoins him from further violations of the Commodity Exchange Act and CFTC Regulations."

CFTC's Director of Enforcement, James McDonald, stated:

“Today’s Order stands as yet another in the string of cases showing the CFTC’s commitment to actively police the virtual currency markets and protect the public interest. In addition, the criminal indictment and sentence reaffirms the CFTC’s commitment to working in parallel with our partners at the Department of Justice to root out misconduct in these markets. My thanks to U.S. Attorney Lausch and his staff, as well as the Federal Bureau of Investigation, for their assistance in this case.”

Also, in a separate criminal action brought by "the U.S. Attorney for the Northern District of Illinois", Kim "pleaded guilty to one count of wire fraud in connection with the misappropriation of approximately $601,000 (USD value) of Litecoin and Bitcoin from his employer, and fraudulent solicitation of $545,000 in funds from investors." According to a report in the Chicago Sun-Times, Kim was given a 15-month prison sentence by U.S. District Judge Andrea Wood "at the conclusion of a 2 ½-hour hearing," during which Kim made the following apology to his victims:

“I betrayed your trust with my desperate actions. I’m still desperately trying to make things right.”

The report also mentions that Kim’s attorney, William Ziegelmueller, pointed out that "while Kim may have defrauded people of millions of dollars, he did not spend any of it on himself":

“The whole reason he did what he did … was because he had a big debt. He was desperate about it. He didn’t know how to react. Mr. Kim’s intent was always to invest,” Ziegemueller added. “He didn’t blow it on Ferraris — he just lost it.”

 

Featured Image Credit: Photo via Pexels.com

Hamas' Military Wing Asks Supporters for Bitcoin Donations, Again

Francisco Memoria

The Al-Qassam Brigades, the military wing of an organization designated as a terrorist group in Europe and the United States currently in control of the Gaza Strip, Hamas, have recently called on supporters for Bitcoin donations.

According to the Israel National News, the group has asked for cryptocurrency donations through a special page on its website that asked supporters for BTC to “Support the Resistance,” in a campaign that sees it state there’s a duty to “support jihad because Jerusalem is an integral part of the Islamic faith.”

This is notably not the first time the group asks its supporters for donations in the flagship cryptocurrency. Back in January, CryptoGlobe reported that a Hamas spokesperson, Abu Obeida, asked supporters for BTC via Instagram, in a post that read:

The Zionist enemy fights the Palestinian resistance by trying to cut aid to the resistance by all means, but lovers of resistance around the world fight these Zionist attempts and seek all possible means to aid the resistance.

The group has reportedly been looking to raise funds via cryptocurrency as it has faced financial woes in the last few years, as banks throughout the world have been distancing themselves from the organization. Hamas’ representative blamed Israel for its current situation earlier this year.

Hamas Tried To Raise Funds Through Coinbase

As reported, Israel-based blockchain intelligence startup Whitestream tracked down two bitcoin donations the cash-strapped group received after the January plea. Per Whitestream, Hamas’ address showed the group was using Coinbase, and received “two relatively small bitcoin donations” amounting to “only $2,500.”

These are said to have come from a bitcoin trader in Khan Yunes, a small town located in the Gaza Strip. Hamas, at the time, published two bitcoin addresses to receive funds, and the Israeli-based firm believes it had to do so after Coinbase blocked the first one.

Notably, the group’s military wing is asking for donations shortly after a Gaza rocket hit a home in central Israel, according to the BBC.