FTC Cracks Down On Crypto Pyramid Scheme

Those who claim that all cryptocurrencies are a pyramid scheme haven’t seen anything yet.

On March 16, 2018, a federal court cracked down on four individuals behind a cryptocurrency pyramid scheme. The defendants allegedly promoted chain referral schemes that promised big rewards to participants who paid a small fee in bitcoin or Litecoin to enroll, according to a complaint by the Federal Trade Commission (FTC).

The FTC charges that four individuals have violated its prohibition against deceptive acts by claiming that three chain referral schemes could generate substantial income for participants. The U.S. District Court for the Southern District of Florida has issued a temporary restraining order and frozen the defendants’ assets until a proceeding takes place.

Three of the defendants (Thomas Dluca, Louis Gatto and Eric Pinkston) promoted schemes known as Bitcoin Funding Team and My7Network using websites, YouTube, social media and conference calls, claiming that Bitcoin Funding Team could turn $100 worth of bitcoin into a monthly income of $80,000.

To generate revenue, participants had to recruit other new participants who would also pay the enrollment fee in cryptocurrency. Upon joining, new members paid bitcoin to an earlier participant who recruited them as well as a small fee to Bitcoin Funding Team.

Participants were led to believe that paying with more bitcoins could earn them bigger rewards.

A fourth defendant (Scott Chandler) promoted a scheme called Jetcoin, which promised a fixed rate of return on initial bitcoin investments and claimed that participants could double their investments in 50 days. The scheme ceased operation within two months of its launch, noted the FTC. Chandler also allegedly promoted Bitcoin Funding Team.

“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.”