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CHIPS Articles: FTC Shuts Down Promoters of Deceptive Cryptocurrency Schemes

FTC Shuts Down Promoters of Deceptive Cryptocurrency Schemes
By CHIPS Magazine - March 21, 2018
Pyramid enterprises, chain letters, they are age-old scams promising quick rewards to the unsuspecting.

Have you ever received a chain letter in the mail or online? Then you know the routine — you send money to a person at the top of a list, then take their name off and add yours to the bottom before sending the letter to more and more people. If the letters keep going, you’re supposed to make money as your name moves up the list. In fact, most people are guaranteed to lose money.

In today’s twist: online chain referral schemes involving cryptocurrencies like bitcoin and Litecoin.

A federal court has halted the activities of four individuals who allegedly promoted deceptive money-making schemes involving cryptocurrencies at the urging of the Federal Trade Commission. The schemes falsely promised participants they could earn large returns by paying cryptocurrency such as bitcoin or Litecoin to enroll in the schemes, according to the FTC release.

In a complaint, the FTC alleges that three defendants – Thomas Dluca, Louis Gatto, and Eric Pinkston – promoted chain referral schemes known as Bitcoin Funding Team and My7Network. Using websites, YouTube videos, social media and conference calls, the defendants promised big rewards for a small payment of bitcoin or Litecoin.

The defendants claimed that Bitcoin Funding Team could turn a payment of the equivalent of just over $100 into $80,000 in monthly income. The FTC alleges, however, that the structure of the schemes ensured that few would benefit. In fact, the majority of participants would fail to recoup their initial investments.

According to the FTC, Bitcoin Funding Team and My7Network participants could only generate revenue by recruiting new participants and convincing them to also pay cryptocurrency. For example, Bitcoin Funding Team participants were required to make an initial bitcoin payment to an earlier participant and pay a fee to Bitcoin Funding Team. With these payments, participants were eligible to recruit new members and receive payments from them. Promoters claimed participants could earn bigger rewards if they paid additional bitcoins.

The FTC alleges that a fourth defendant, Scott Chandler, promoted Bitcoin Funding Team and another deceptive cryptocurrency scheme, Jetcoin. Jetcoin also promoted a recruitment scheme and additionally promised investors a fixed rate of return on their initial bitcoin investments as a result of bitcoin trading. In a series of promotional calls, Chandler claimed Jetcoin participants could double their investment in 50 days. In reality, the FTC complaint alleges, the scheme failed to deliver on these claims and ceased operation within two months of launching.

In its complaint, the FTC charged that the defendants violated the FTC Act’s prohibition against deceptive acts by misrepresenting the chain referral schemes as bona fide money-making opportunities and by falsely claiming that participants could earn substantial income by participating in the three schemes.

As requested by the FTC, the court has issued a temporary restraining order and frozen the defendants’ assets pending trial.

The FTC files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357).

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