The FTC’s Consumer Protection Division has long targeted advertisements for “work-at-home,” business and investment opportunities that exaggerate the earning potential and downplay risks. Recently, the FTC announced that it filed a complaint against four individuals doing business as “Bitcoin Funding Team” in the U.S. District Court for the Southern District of Florida for deceptively advertising a cryptocurrency scheme that promised consumers that they could turn a cryptocurrency payment of approximately $100 into $80,000 in monthly income. Specifically, the complaint alleges two counts: 1) that Defendants’ representations that the programs are structured to operate as bona fide money-making opportunities are false or misleading and violate Section 5(a) of the FTC Act, and 2) that Defendants’ representations that consumers who participate in the programs are likely to earn substantial income are also false or misleading, violating Section 5(a). On March 16th, the Commission secured a temporary restraining order against, and froze the assets of pending trial, the defendants it alleges who were operating and promoting cryptocurrency pyramid schemes.
Defendants Thomas Dluca, Louis Gatto, and Eric Pinkston promoted the two “chain referral” schemes known as Bitcoin Funding Team and My7Network, which were pitched as being able to turn a cryptocurrency payment in the value of around $100 into $80,000 in monthly income. After its investigation, however, the FTC alleged that the structure of the schemes ensured that few participants would see these benefits, and that a majority of participants would fail even to recoup their initial investment.
Bitcoin Funding Team and My7Network operated much like any other pyramid scheme, where participants could only generate revenue by recruiting other participants and having them buy in with cryptocurrency. For example, to join, Bitcoin Funding Team participants had to make an initial bitcoin payment to an earlier participant and pay a fee to Bitcoin Funding Team. With these payments, participants were then eligible to recruit additional members in order to receive payments from them. My7Network operated similarly.
The fourth defendant, Scott Chandler, promoted both Bitcoin Funding Team and Jetcoin—another chain referral scheme that promised investors a fixed rate of return on their initial bitcoin investment, and claimed that participants could double their investment in as little as 50 days. This “passive” investment program was offered along with a multilevel program that operated similarly to Bitcoin Funding Team and My7Network where participants received a commission for recruiting other investors to join the program. Jetcoin was ultimately unsuccessful and closed operations after only two months of launching.
As the FTC Bureau of Consumer Protection Acting Director Tom Pahl stated, “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. . . . The schemes the defendants promoted were designed to enrich those at the top at the expense of everyone else.” This enforcement action followed on the heels of a recent post to the FTC’s Consumer Blog warning consumers to know the risks prior to investing in cryptocurrencies. Specifically, the FTC cautions that cryptocurrencies are not backed by a government or central bank, holdings are not insured like bank deposits, and values can wildly fluctuate. As a result, they are not necessarily good investments. Going forward, we will likely see increased scrutiny from the FTC on advertising that promises substantial rewards from investing in cryptocurrencies while downplaying the risks.