CFTC Stops $3.4 Billion Crypto Fraudster

3-year global scam has 23,000 victims

Ric Edelman: It's Thursday, May 18th. And, you know, I talk a lot with you about crypto, and I think it's pretty obvious that I'm a supporter of this technology and believe that it offers incredible opportunities for the improvement of commerce and our daily lives. And that's why I wrote my book, The Truth About Crypto. To help you learn more about all of this and why I created the Certificate in Blockchain and Digital Assets and online self-study course with a world class faculty. You can learn more about that at DACFP.com. The links are in the show notes.

But having said all the above, there is no question that crypto remains an emerging technology and there remains too little regulatory protection for consumers. The latest evidence the Commodity Futures Trading Commission has just won its biggest crypto fraud case ever $3.4 billion. They won the case against Cornelius Steinberg, the CEO of Mirror Trading International Proprietary Limited. That's a mouthful of a name. Half the money is going to go to repay victims of the fraud. The other half is a penalty from the CFTC. It's the highest ever ordered in any case by that agency. But nobody knows how much of that money will ever actually get recovered. The victims may end up getting nothing.

The court said that Steinberg ran an international fraud multi-level marketing scheme from 2018 through 2021. He collected 29,000 bitcoins from 23,000 people in both the US and around the world. Right now, he's under arrest in Brazil on an Interpol arrest warrant. South African authorities want him too, in addition to those in the US. Oh, and by the way, the CFTC has permanently banned Steinberg from ever engaging in commodities trading in the future - as if that's the biggest concern this guy has.

The bottom line is this we need more law, more regulation; we need more clarity. We need a stronger set of rules than exist today that will guide the conduct of legitimate, honest businesses, which will have two huge benefits for consumers. The first, it will make it more difficult for bad guys to do things. And second, it'll make it easier for ordinary investors and consumers to know who they can rely on for their investments in the crypto space. It'll also make it easier for investment advisors and RIAs and brokerage firms and banks to participate in the crypto markets, because the one thing that regulated activity participants want is a clear set of rules of the road.

A lot of financial advisors and a lot of advisory firms tell me that the reason they're not more actively engaged in crypto is not because they don't like crypto. It's because they're not sure how to proceed in a way that won't create the ire of regulators. And the reason is that they're fearful that regulators might come down on them because they're behaving in a way that they don't know they're not allowed to behave.

It's kind of like driving on a highway, not knowing what the speed limit is. You suddenly get pulled over by a cop who says you were traveling too fast when you didn't know what the rules were. So we need the regulatory and legislative clarity that will make it clear here's what to do; here's how to do it. Fortunately, there's a lot of movement in Congress to provide exactly this, because the current state of the art is what's called “regulation by enforcement”. 

In other words, cops running around highways, giving tickets to people who are speeding without knowing they were speeding. That's what Gary Gensler is doing. He's chair of the Securities and Exchange Commission, and they've been levying fines and issuing subpoenas to crypto companies and to others in the industry, claiming that they've been breaking rules when nobody has, in fact, known what the rules are.

We need to bring that to a stop. A $3.4 billion fraud involving 23,000 victims around the world. This has got to stop.

In the meantime, you need to recognize two things. First, you're on your own. Don't assume that the regulators are there to protect you, because at the moment they really kind of aren't. Second, make sure you're dealing with an established, well-known, well-regarded organization when you're dealing with crypto. There are a lot of them, and it's easy to identify the legitimate, honest organizations from those that are less so. Companies ranging from Invesco to Global X ETFs to Fidelity to Schwab to Franklin Templeton to Bitwise Asset Management. The list goes on and on of companies that you can have comfort with when investing in crypto, at least from a fraud perspective. That's not to say anything about the risks of making the investments, but it's one thing to knowingly risk your money and it's quite another to become a victim of a fraud.

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