The Commodity Futures Trading Commission has ordered a trader to pay more than $1.1 million to a company he worked for and to private investors as a settlement for a fraudulent cryptocurrency scheme.
A federal court in Illinois also sentenced Kim to 15 months after he pleaded guilty to related criminal charges.
“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,” James McDonald, the agency’s director of enforcement, said in the press release. “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.”
The CFTC said that between September and November of last year, Kim misappropriated bitcoin and litecoin holdings from his company, a Chicago-based trading firm, through transfers between the firm’s accounts and his personal accounts. When the company questioned him, he said that security issues required the transfers.
After the company fired Kim, he solicited approximately $545,000 from at least five customers to trade cryptocurrency. The CFTC said that Kim didn’t tell his new customers about his firing or reveal the risky nature of the investments he was making. He later concealed the loss of these funds via false account statements that showed profits.
The CFTC order also permanently bars Kim from trading cryptocurrency.
The settlement comes as U.S. regulators have been cracking down elsewhere on improper cryptocurrency activities. Last week, the founder of the EtherDelta digital token platform agreed to pay $375,000 to settle Securities and Exchange Commission charges that he was operating an unregistered, national securities exchange. Separately, the SEC has been pressuring crypto startups to settle cases related to improper token sales.
Michael Brandwein, a senior lawyer at the Northfield, Ill.-based Gordon Law Group, said these recent events don’t herald a drastic sea change, however.
“I would expect government to react accordingly where it believes fraud has been committed, but it is difficult to imagine, at least within the next few years, sweeping regulatory changes simply based on the emergence of this highly volatile market,” said Brandwein, whose firm handles regulatory and other issues related to financial technology, crypto investment and startups.
Brandwein said the one agency that could increase enforcement is the Internal Revenue Service. “Crypto is just another source of taxation, and there is an abundance of people who likely aren’t disclosing their crypto trading,” he said.
He added that people who “trade crypto and take investments need to be careful with respect to state laws concerning trading. If you take someone’s money or property, there is a good chance someone nearby is watching.”