Largest Bitcoin Fraud Scheme Results in $3.4 Billion Penalty in a Case Brought by CFTC

A judge has ordered a record-breaking $3.4 billion penalty in a fraud case involving Bitcoin brought by the US Commodity Futures Trading Commission.

In a Thursday press release, the CFTC revealed that Cornelius Johannes Steynberg, a South African national and CEO of Mirror Trading International Proprietary Limited (MTI), has been ordered to pay the penalty for his role in a fraudulent commodity pool scheme that involved foreign currency transactions and Bitcoin. 

The scheme involved an international multilevel marketing strategy that enticed people to invest Bitcoin to gain membership to an unregistered commodity pool. 

Judge Lee Yeakel ordered Steynberg to pay $1.73 billion in restitution and a further $1.73 billion civil monetary penalty. 

The CFTC said this is the “largest fraudulent scheme involving Bitcoin” charged in any CFTC case and the “highest civil monetary penalty ordered in any CFTC case.”

From May 2018 to March 2021, Steynberg accepted 29,421 BTC from 23,000 people in the US and abroad. The BTC stash was worth more than $1.7 billion at the time but is currently worth approximately $867 million.

The CFTC discovered that Steynberg misappropriated all the Bitcoin he had collected from pool participants.

Steynberg has been found liable for fraud in connection with retail foreign currency transactions, registration violations, fraud by an associated person of a commodity pool operator, and failure to comply with commodity pool operator (CPO) regulations. 

Additionally, Steynberg’s involvement with the Commodity Exchange Act has resulted in a permanent ban on his participation in any conduct violating the act. 

He is also permanently banned from trading in any CFTC-regulated markets or registering with the CFTC.

The CFTC initially filed a civil enforcement case in a federal court for fraud and registration violations against Steynberg on June 30, 2022. 

Although the defendant fled from South African law enforcement, he has been held in Brazil since December 2021 under an INTERPOL arrest warrant. Despite Steynberg’s absence from his case, he has been found liable and ordered to pay the record civil penalty. 

CFTC and the SEC Clampdown on Crypto Companies Amid Increasing Regulatory Scrutiny

The CFTC and the SEC, which are two of the biggest financial regulators in the US, have launched an aggressive crackdown on the crypto industry following the unprecedented collapse of the crypto exchange FTX.

The CFTC has recently announced that it is suing Binance and founder Changpeng “CZ” Zhao on allegations that the crypto exchange knowingly offered unregistered crypto derivative products in the US in the transgression of the law.

Furthermore, the SEC has sent a “Wells notice” to Coinbase, threatening the crypto exchange with legal actions regarding some of its listed digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. 

As reported, the exacerbating regulatory environment in the US has forced Binance.US to pull out of the $1.3 billion deal to buy bankrupt crypto lender Voyager Digital. 

“The hostile and uncertain regulatory climate in the United States has introduced an unpredictable operating environment impacting the entire American business community,” Binance.US said earlier this week.