FTC cracks down on alleged bitcoin pyramid schemes

FTC cracks down on alleged bitcoin pyramid schemes
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A federal court froze the assets Friday of four men accused of running cryptocurrency scams. 

Three of the defendants — Thomas Dluca, Louis Gatto and Eric Pinkston — are accused of running “chain referral” schemes. The Federal Trade Commission (FTC) claims the defendants deceptively promised individuals large returns if they would pay enrollment fees to invest in cryptocurrencies like bitcoin and litecoin.

The FTC believes that the structure of the scheme would make it impossible to pay out the promised monthly payouts of between $100 and $80,000. 

After paying to join the networks, individuals could bring in other users to the network, who would also pay in.

The fourth defendant, Scott Chandler, promoted the service, called Bitcoin Funding Team, and another bitcoin-based scheme called Jetcoin. Chandler promised that Jetcoin would provide fixed returns but never delivered on such claims, according to the FTC. Jetcoin ultimately folded within two months of its launch.

“This case shows that scammers always find new ways to market old schemes, which is why the FTC will remain vigilant regardless of the platform — or currency used,” said Tom Pahl, acting director of the FTC’s Bureau of Consumer Protection. “The schemes the defendants promoted were designed to enrich those at the top at the expense of everyone else.”

The agency’s acting chief technologist, Neil Chilson, said in a blog post on Friday that he expects the FTC to take future enforcement action on cryptocurrency fraud and is watching for other new potential schemes.

“Because these developments broadly affect the FTC’s work across the agency, we have created an internal FTC Blockchain Working Group,” Chilson explained.

The group will build on the FTC’s existing work on cryptocurrencies and bring in outside experts to help the agency as it polices bad actors using the currency in the future.

“We believe this working group is an important step to ensure the FTC can continue its missions to protect consumers and promote competition in light of cryptocurrency and blockchain developments,” Chilson said.