The CFTC and the DOJ charged (see here and here) the principal of a cryptocurrency escrow company for making false statements to two customers who had given the principal $7 million that their bitcoin would be "safeguarded" by his company.
According to the CFTC, neither the principal nor his company had control over the customers' bitcoin. Additionally, the CFTC alleged that (i) the customers never received the bitcoin, (ii) customer funds were not protected as the principal had said, and (iii) after receiving the customers' money, the principal sent the money to third parties without first receiving any bitcoin in return, did not deliver bitcoin to the customers, and then lied to the customers about the location of the bitcoin, the reasons the transaction was not completed, and the status of the customers' money.
Separately, the U.S. Attorney for the Southern District of New York announced that a grand jury returned an indictment including allegations that the principal promoted his company by claiming it would "minimize settlement default risk" for cryptocurrency transactions by acting as the custodian of assets for "both sides of the transactions," which he stated would result in "no risk of default."
Commentary
Paragraph 11 of the Complaint contains a CFTC explanation of how bitcoin is "delivered" to a customer (noting that bitcoin is held in electronic "wallets" that have unique addresses designated by a string of letters and numbers, and that can be accessed by those who possess a unique "private key" associated with a wallet's address). But beyond the developing factual understanding of regulators of how these assets work, it is somewhat surprising that the CFTC, at least, did not seek a court-ordered freeze of the defendant's assets, given the large sums of money lost by two customers and what appears to be ongoing fraud.
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