The "Circle Society" looked more like a pyramid, according to the CFTC (via Pixabay).

Bitcoin Ponzi scheme netted $11 million

In condemning the fraud, CFTC Chair Heath Tarbert said digital assets ‘hold great promise for our economy’

Commodity Futures Trading Commission Chairman Heath Tarbert spoke glowingly of cryptocurrencies on October 16. “Digital assets and other 21st century commodities hold great promise for our economy,” Tarbert said in a release. 

Unfortunately, he said that while announcing an lawsuit in which the CFTC was seeking to regain funds stolen in an $11 million Bitcoin (BTC) Ponzi scheme. 

The agency was granted a court order on October 3 freezing the assets of David Saffron, a Las Vegas resident, the agency said. He was charged with fraudulent solicitation, misappropriation, and registration violations in the civil suit. He was also ordered to retain documents by the U.S. District Court for the District of Nevada.

The agency alleged that Saffron pretended to be running an investment pool that made off-exchange trades through a company called Circle Society. Clients invested $11 million in bitcoins and U.S. dollars in the scheme, said the CFTC.

Saffron promised victims a 300% return by trading binary options in cryptocurrency pairs and on foreign currencies, it added. 

Like most investments that sound too good to be true, it was, the agency alleged.

Instead of making trades, Saffron was actually keeping the money in his personal cryptocurrency wallet, according to the release. He used those “funds to pay other participants, in the manner of a Ponzi scheme,” it added.

“Fraudulent schemes, like that alleged in this case, not only cheat innocent people out of their hard-earned money, but they threaten to undermine the responsible development of these new and innovative markets,” Tarbert said. “America must be a leader in this space, and we will only succeed if these markets have integrity.”

The CFTC chairman has been a supporter of cryptocurrencies since taking over the agency in July. On October 10, he announced that he considered, ether (ETH) to be a commodity regulated by his agency, rather than a security under the Securities and Exchange Commission.

That would make the second-largest cryptocurrency by market capitalization eligible to be traded as a future, joining bitcoin.

While the agency said it would try to restore assets to the scheme’s victims, it warned that they may be gone.

The CFTC is also seeking fines, a permanent registration and trading ban, and an injunction against future violations of the Commodity Exchange Act and Commission regulations. 

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.