BOSTON (Reuters) – The founder of a Nevada-based company was arrested on Wednesday on federal charges he participated in a $6 million scheme to defraud people who wanted to buy a virtual currency called My Big Coin that he claimed was backed by gold.
FILE PHOTO: Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. REUTERS/Dado Ruvic/Illustration/File Photo
Randall Crater, the principal operator of My Big Coin Pay Inc, was arrested in Florida after being charged in an indictment filed in federal court in Boston with seven counts of wire fraud and unlawful monetary transactions.
The indictment came after the U.S. Commodity Futures Trading Commission last year sued the company, Crater and three other men and accused them of participating in a fraudulent virtual currency scheme.
The lawsuit led to one of the first court rulings holding that a virtual currency could be considered a commodity within the jurisdiction of the U.S. derivatives regulator. That civil case remains pending.
Ray Chandler, a lawyer for Crater, said the 48-year-old was innocent and plans to plead not guilty when he is eventually arraigned.
“There are dozens and dozens of documents available that show Mr. Crater made every effort to create a viable virtual currency,” he said.
The case against Crater, of East Hampton, New York, is one of several that U.S. prosecutors and regulators have recently pursued amid concerns about fraud schemes targeting cryptocurrency users.
Prosecutors said from 2014 to 2017, Crater and others sought to defraud investors by soliciting investments in My Big Coin, which they falsely claimed was backed by gold and could be traded on a virtual currency exchange.
In a Jan. 28, 2015, email, Crater told an investor that “we have 300 million in gold backing us,” the indictment said.
It alleged that the company’s website also falsely claimed its virtual currency was backed by gold bullion, could be transferred to anyone and could be used to shop in any store that accepted it.
Rather than use investor funds as promised, Crater misappropriated $6 million for his personal uses, such as buying artwork, antiques and jewelry, the indictment said.
In its related lawsuit, the CFTC alleged the $6 million came from at least 28 customers. It said Crater and others solicited them to buy My Big Coin, whose name sounded similar to the popular virtual currency bitcoin.
The case is U.S. v. Crater, U.S. District Court, District of Massachusetts, No. 19-cr-10063.
Reporting by Nate Raymond in Boston; Editing by Paul Simao and Tom Brown