September 28, 2018
CFTC Charges Two Defendants with Fraudulent Solicitation, Impersonation of a CFTC Investigator, and Forging CFTC Documents, All in Attempt to Steal Bitcoin
Washington, DC — The Commodity Futures Trading Commission (CFTC) today charged two defendants — one using the name Morgan Hunt, purportedly of Arlington, Texas, and doing business as Diamonds Trading Investment House (Hunt), and the other using the name Kim Hecroft, purportedly of Baltimore, Maryland, and doing business as First Options Trading (Hecroft) — with fraudulent solicitation and other fraud. In a Complaint filed in the U.S. District Court for the Northern District of Texas, the CFTC alleges that Hunt and Hecroft engaged in a fraudulent scheme to solicit Bitcoin from members of the public, through false or misleading representations or omissions, to invest in trading products including leveraged or margined foreign currency contracts (forex), binary options, and diamonds. The Complaint additionally alleges that the defendants forged account statements, impersonated a CFTC investigator, and even forged documents purportedly authored by the CFTC’s General Counsel and bearing the image of the CFTC’s official Seal as part of their fraudulent scheme.
CFTC Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement, commented: “Increased public awareness of the CFTC’s involvement in policing the virtual currency markets has, unfortunately, provided new opportunities for bad actors. As alleged in the Complaint, Defendants sought to exploit public trust in the CFTC through forged documents purporting to be official CFTC memoranda requiring the payment of a tax on cryptocurrency accounts. The CFTC does not collect taxes. The CFTC is on guard against fraudsters who try to take advantage of the CFTC’s reputation in order to cheat customers, and will take swift action against such misconduct.”
Summary of Allegations
The CFTC’s Complaint alleges that, between January 2017 and the present, through the use of Facebook and email, Hunt and Hecroft defrauded at least two customers. As the Complaint alleges, Hunt and Hecroft (1) misrepresented to customers that their funds would be used to invest in trading for the benefit of the customers; (2) misrepresented to customers their experience and track record as traders and portfolio managers; (3) misrepresented that they were using customer funds to trade commodity interests and were doing so profitably, including by providing customers with fake account statements; (4) misrepresented to customers that they could not withdraw any of their purported investment profits unless they first paid a tax to the CFTC; and (5) misappropriated customer funds for unauthorized purposes rather than investing the funds for the customers’ benefit.
The Complaint further alleges that both Defendants supplied their victims with phony documents in furtherance of their fraud, including doctored versions of a publicly available February 5, 2018, memorandum to CFTC staff from the CFTC’s General Counsel. As alleged, Defendants’ forgeries altered the CFTC memorandum to make it appear, falsely, that retail investors such as Defendants’ victims were required to pay a “tax obligation” to the CFTC if they wished to withdraw funds from their Bitcoin accounts.
Through the use of forged CFTC documents involving use of the official seal of the CFTC — which, pursuant to 18 U.S.C. § 506 and/or 18 U.S.C. § 1017, may be a federal crime — Hecroft allegedly induced a customer to transfer additional funds in the form of Bitcoin to Hecroft under the pretense of paying a tax to the CFTC. In addition, the Complaint alleges that Hunt arranged for an associate to impersonate a fictitious CFTC investigator in a telephone conversation with his customer so as to support Hunt’s false story about the customer’s “tax obligation.”
In its continuing litigation, the CFTC seeks restitution to defrauded persons, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC Regulations, as charged.
This case is brought in connection with the CFTC Division of Enforcement Virtual Currencies Task Force, and the staff members responsible for this case are Trevor Kokal, David C. Newman, R. Stephen Painter Jr., Lenel Hickson Jr., and Manal M. Sultan.