Sunday , September 20, 2020

Eye on Cryptocurrency: Libra Backers Getting Cold Feet? Settlement in Alleged Crypto Pyramid Scheme

Several backers of Facebook Inc.’s proposed Libra cryptocurrency are having second thoughts because of regulatory pushback, according to a British newspaper report. Meanwhile, the Federal Trade Commission announced settlements Thursday with four defendants accused of falsely promising big returns to consumers who paid in cryptocurrencies to participate in an alleged multi-level marketing scheme.

London’s Financial Times reported Thursday that “at least three” of the 28 members of the Libra Association are “privately discussing how to distance themselves from the venture.” The newspaper did not identify the three participants.

“Two of the project’s founding backers told the FT they were concerned about the regulatory spotlight and were considering cutting ties,” the newspaper reported. “Another backer said they were worried about publicly supporting Libra for fear of attracting the attention of agencies who oversee their own businesses.”

While Libra is the brainchild of the giant social network Facebook, the Libra Association is an international consortium that is expected to take over governance of Libra after this year, basing its operations in Geneva, Switzerland. Facebook will be one of the 28, along with payments companies Mastercard Inc., PayPal Holdings Inc., PayU, and Visa Inc.

Libra has faced strong criticism from European Union financial regulators and has been greeted with skepticism in the U.S. Congress. A month ago, Visa chief executive Alfred Kelly noted that Visa had not yet made a binding commitment to join Libra, though he also said “we actually believe we could be additive and helpful in the association.”

In other cryptocurrency news, the Federal Trade Commission announced settlements with four men accused in connection with an alleged pyramid scheme in which participants supposedly could earn large returns by paying cryptocurrency such as bitcoin or Litecoin to enroll in programs marketed under the names Bitcoin Funding Team and My7Network. The FTC said Bitcoin Funding Team and My7Network were chain-referral schemes—a type of pyramid scheme that depended on continual recruitment of new participants to generate revenue. In addition to promoting Bitcoin Funding Team, one of the defendants also promoted another deceptive cryptocurrency scheme, Jetcoin, which promised participants a fixed rate of return, but failed to deliver on its claims, the FTC alleged.

“The defendants promoted the cryptocurrency programs through Web sites, YouTube videos, social media, and conference calls, claiming, for example, that Bitcoin Funding Team could turn a payment of the equivalent of just over $100 into $80,000 in monthly income,” the FTC said in a press release. “The FTC alleges, however, that the structure of the schemes ensured that few would benefit. In fact, most participants failed to recoup their initial investments.”

The FTC last year obtained a court order to stop the programs and freeze the defendants’ assets. The settlement forged in U.S. District Court in Fort Lauderdale, Fla., bans the men from participating in multi-level and similar marketing operations. One defendant, Thomas Dluca, is required to pay $453,932 under the settlement, and another, Scott Chandler, must pay $31,000. A third defendant, Eric Pinkston, agreed to a $461,035 judgment, which will be suspended upon payment of $29,491 due to his inability to pay the full amount.

“Mr. Pinkston is a Missouri farmer who saw cryptocurrency as an opportunity to help regular working class people like him to invest in something with great upside potential,” his attorney, Rodolfo “Rudy” Mayor III of Fort Lauderdale, tells Digital Transactions News by email. “Unfortunately, Mr. Pinkston got caught up in someone else’s alleged scheme and by this settlement he hopes to do right by those who may have been harmed, just as he was.”

In an email, David Braun, a Pembroke Pines, Fla., attorney representing Chandler and the fourth defendant, Louis Gatto, called the settlement “a huge win for cryptocurrency and its enthusiasts. We had to navigate through the governmental efforts to harness and restrict what is now a proven revolutionary industry, cryptocurrency!”

Dluca’s attorney did not respond to a Digital Transactions News email requesting comment.

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