Crypto Trader Fined $1.1 Million for Running Bitcoin and Litecoin Scams

Joseph Kim (Source: LinkedIn)

A press release issued on the 9th of November 2018 by the U.S. Commodity Futures Trading Commission (CFTC) stated that Joseph Kim of Phoenix, Arizona was ordered to pay $1.146 million in restitution to his company and customers for his fraudulent Bitcoin and Litecoin scheme.

According to the press release, Joseph Kim – a former crypto trader with Firm (a Chicago-based proprietary trading firm) – admitted to defrauding his employer and dubiously obtaining funds from unsuspecting investors. Consequently, he was sentenced to 15 months in prison on related criminal charges filled in the United States District Court for the Northern District of Illinois.

After an intensive investigation, the CFTC discovered that Joseph Kim embezzled Bitcoin and Litecoin from his employer between September 2017 and November 2017. Although he claimed it was due to a problem with the virtual currency system, Kim deliberately transferred $601,000 worth of Bitcoin and Litecoin from the firms account to his personal accounts. When he was questioned by his employer, he falsely informed them that there was a security breach on the trading platform hence, the need to move the coins. Kim’s action apparently raised suspicions and he was eventually fired when the firm uncovered his scheme.

In a bid to reimburse his former firm, Kim set out to defraud unsuspecting investors who traded with his former firm. He began by soliciting for funds from investors and telling them that he would only invest their funds in a low-risk virtual currency arbitrage strategy. For the fear of being suspected, he withheld information surrounding his dismissal and falsely informed investors that he had decided to leave the firm to start his own firm. Your guess is just as good as mine – it didn’t go as planned.

After getting funds from unsuspecting investors, Kim proceeded to engage in high-risk, directional bets on the movement of virtual currencies. This resulted in Kim losing all the money he had collected from clients which totaled $545,000 of his customers’ funds. Kim then falsified account statements to hide his losses and sent these false bank statements to his clients, reflecting the profits he made from the trade.

Kim’s Penalty

Kim pleaded guilty to one count of wire fraud in connection with the misappropriation of $601,000 worth of Bitcoin and Litecoin. He also pleaded guilty to the charge of solicitation of $545,000 from unsuspecting investors. In total, he was mandated to make restitution of $1,146,000 to both his former company and the customers.

Consequently, a permanent trading and registration ban for cryptocurrency trading and for soliciting of funds was placed on Kim.

The CFTC Director of Enforcement, Mr. James McDonald, in a public statement, informed the public that the CFTC is committed to actively police the virtual currency markets and protect the public interest.

In related news, Zachary Cobourn, the founder of crypto token trading platform EtherDelta was charged by the United States Securities and Exchange Commission (SEC) with operating an unregistered securities exchange. Consequently, he agreed to make payment of $400,000 in fines for an operating period of 18 months.