A New York Court has charged the founders of ATM Coin with committing fraud and misappropriating client funds, ordering them to pay $4.25 million to settle the case. Four companies associated with ATM Coin have also been charged.

The U.S. District Court for the Eastern District of New York has ordered Blake Harrison Kantor and Nathan Mullins, in addition to four associated companies, to pay $4.25 million stemming from charges of fraud and misappropriation of funds. The case was first launched by the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Virtual Currency on April 16, 2018.

ATM Coin Scheme Uncovered

The four firms involved include New York-based Mercury Cove and G. Thomas Client Services, UK-based Blue Bit Banc, and the Caicos-based Blue Bit Analytics firm. Together with Kantor and Mullins, they are responsible for operations relating to ATM Coin, “a fraudulent scheme involving binary options.”

Binary options allow investors to make a prediction on whether the price of commodities will rise or fall within a certain timeframe. However, in order to be offered in the United States, the options must be traded on an exchange registered with the CFTC — which ATM Coin was not.

U.S. Attorney Richard Donohue described how the defendants carried out the scheme:

“As alleged, Kantor used a computer program to generate manipulated data to cheat hundreds of investors out of their hard-earned savings. To cover-up his fraudulent scheme, Kantor then lied to the FBI and ordered the alteration of documents that would assist agents in identifying his victims.”

The filing further claimed that the defendants sought to mask the misappropriation of funds, gathered through email, phone calls, and online, by asking the victims to transfer binary options account balances into a cryptocurrency called ATM Coin.

Kantor has also pleaded guilty to conspiracy to commit wire fraud and obstructing an investigation in a related case and will serve 86 months in prison.

US Authorities Determined to Weed Out Shady Projects and Pass Regulation

As governments prepare to launch their own central bank-issued digital currencies, investment vehicles continue to grow and blockchain technology becomes more tightly integrated with incumbent industries. The US government has needed to pour more resources into scrutinizing the market after several high-profile incidents have followed the 2017 cryptocurrency boom.

Most recently, the U.S. House Committee on Financial Services conducted a hearing on Sept. 24, involving the commissioners of the U.S. Securities and Exchange Commission (SEC). Committee Chairwoman Maxine Waters asked that Facebook’s Libra be “appropriately and rigorously regulated.”

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