Founders of ‘worthless cryptocurrency’ ATM Coin fined over $4.25m scam

The US Commodity Futures Trading Commission (CFTC) on Friday announced that it’s fining the founders of a “worthless cryptocurrency” that ran a $4.25m, so-called “binary options” scam involving a virtual currency known as ATM Coin.

Their pie-in-the-sky financial promises were rigged with software that put a finger on the scale to tip it away from a customer’s chance to make a profit on their binary-options gamble. Add a dollop of “Let’s stash your money in St. Kitts and Nevis where it’s conveniently tough to trace funds,” and the equation balances out to that $4.25m fine for fraud and misappropriation of client funds.

Binary options give the buyer the right to buy or sell an asset for a specified price on or before a certain date. See below for the CFTC’s detailed explanation of how they work. TL;DR: suffice it to say that these financial contracts tend toward the slimy, right along with initial coin offerings (ICOs).

Facebook banned ads for both ICOs and binary options back in 2018, on top of ads for cryptocurrency in general, or, really, anything that combines exclamation marks, full capitals and/or deceptive financial promises, like, say, these real-world examples:

• “Start binary options trading now and receive a 10-risk free trades bonus!”
• “Click here to learn more about our no-risk cryptocurrency that enables instant payments to anyone in the world.”
• “New ICO! Buy tokens at a 15% discount NOW!”
• “Use your retirement funds to buy Bitcoin!”

This is what Facebook product management director Rob Leathern had to say at the time:

There are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.

Clearly, the ATM Coin lot were not operating in good faith. Rather, they were operating in something about as valuable as pocket lint.

According to the CFTC’s complaint, to be legal in the US, binary options have to be traded on a registered board of trade. The complaint said that none of the defendants were registered to make transactions, nor have they ever been registered with the CFTC at all, whatsoever, in any capacity.

On Friday, a default finding was entered against founders Blake Harrison Kantor and Nathan Mullins, both from New York, and against the companies Blue Bit Banc (UK); Blue Bit Analytics (Turks and Caicos); and the two New York companies Mercury Cove Inc. and G. Thomas Client Services.

As the CFTC tells it, customers could either trade for themselves or have a Blue Bit Banc rep do it for them. One thing the defendants failed to mention: Blue Bit Banc was using a computer software program that altered binary options data in order to tip the scale toward “you lose, sucker!”, leaving Blue Bit Banc more likely to turn a profit.

Part of the alleged scheme was to tell most investors to send their funds to a bank account in the island nation of St. Kitts and Nevis, making it all that much more difficult to trace the funds. The defendants also converted Blue Bit Banc investments into ATM Coin, a cryptocurrency that Kantor told investors was worth $beaucoup bucks but was actually worth $bupkus.

This is how the punishments got divvied up in a federal court on 23 October 2019:

• $846,405 order of restitution and a civil monetary penalty of $2.5 million against Kantor and the corporations.
• $300,000 penalty against Mullins.
• Kantor and Mullins have been forced to pay back $515,759 and $89,574 in ill-gotten gains, respectively.
• The order also found that Kantor, Blue Bit Analytics, and G. Thomas Client Services had accepted customer funds and illegally acted as Futures Commission Merchants without being registered with the CFTC. They’ve been permanently banned from engaging in such conduct, which violates the Commodity Exchange Act.
• Blue Wolf Sales Consultants, a New York company owned by Kantor, was ordered to disgorge $463,097.

The CFTC says that in a related case, Kantor also pleaded guilty to conspiracy to commit wire fraud and admitted to obstructing an investigation into his fraudulent scheme. He’s been sentenced to 86 months in jail.

Binary options: the “all-or-nothing” options

The CFTC issued a fraud advisory about these binary options, sometimes referred to as “all-or-nothing options” or “fixed-return options and the platforms they trade on.

The CFTC:

The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount. For example, the yes/no proposition connected to the binary option might be something as straightforward as whether the stock price of XYZ company will be above $9.36 per share at 2:30 pm on a particular day, or whether the price of silver will be above $33.40 per ounce at 11:17 am on a particular day.

You can see where the risk comes in: as the ATM Coin scam shows, the yes/no coin flip can be weighted against an investor with rigged software, for one thing, but that’s just one of a number of risks.

According to the CFTC’s advisory, internet-based trading platforms that deal in binary options have been proliferating like spring bunnies in recent years. As the number of platforms has increased, so too have the related frauds.

The FTC and the Securities and Exchange Commission (SEC) have seen three main fraud types:

• Refusal to credit customer accounts or reimburse funds to customers.
  Brokers encourage investors to deposit funds into their accounts. But when those customers try to withdraw their original deposit, or the return they’ve been promised, the trading platforms turn the cold shoulder, allegedly cancelling withdrawal requests, refusing to credit accounts, or ignoring customers’ calls and emails.
• Identity theft.
  The CFTC and SEC say that they’re hearing complaints about binary options trading platforms that allegedly collect sensitive customer information – such as credit card and driver’s license data – for “unspecified uses.” If one of these trading platform requests photocopies of your credit card, driver’s license, or other personal data, keep your cards in your wallet and just say no!
• Manipulation of software to generate losing trades.
  In these scams, the trading platforms manipulate the trading software to distort binary options prices and payouts. For example, when a customer’s trade is “winning,” the countdown to expiration is extended arbitrarily until the trade becomes a loss.

The CFTC is looking for reports about these cryptoscams: in the US, customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), or file a tip or complaint online.