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Prison for Crypto Misappropriation: Warning to Rogue Traders

CFTC Crime Fraud

Trading

Journalist

Sead Fadilpašić

Journalist

Sead Fadilpašić

About Author

Sead specializes in writing factual and informative articles to help the public navigate the ever-changing world of crypto. He has extensive experience in the blockchain industry, where he has served...

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Last updated:

June 26, 2023

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A cryptocurrency trader has received 15 months of prison time for misappropriating more than USD 1.1 million worth of Bitcoin and Litecoin, in the first such case in Chicago, Illinois. The US criminal justice system warns that although cryptocurrency is a relatively new concept in this case, they will hold traders and investors accountable for cheating and stealing.

The authorities claim that Joseph Kim misappropriated the funds belonging to his trading firm over a period of two months in order to cover his own losses from cryptocurrency futures trading on foreign exchanges. Working in Chicago as an assistant trader at Consolidated Trading LLC, a proprietary trading firm that had recently formed a cryptocurrency group, he stole around USD 600,000 worth of Bitcoin and Litecoin. After being let go by the company, he engaged in another fraud scheme in which he incurred USD 545,000 in losses by trading cryptocurrencies on behalf of at least five investors, including friends and friends of friends who had invested retirement savings. He hid those losses by sending false account statements to customers, claiming profitable trading.

Aside from the 15 months he will spend in prison, Kim was also ordered to pay USD 1.1 million in restitution to his company and customers. Assistant US Attorneys Sunil Harjani and Sheri Mecklenburg said in the sentencing memorandum: “It is important that the public know that despite the complexity of cryptocurrency trading, the criminal justice system will hold traders and investment professionals accountable for cheating and stealing.”

CFTC (The Commodity Futures Trading Commission) Director of Enforcement James McDonald added that, “Today’s Order stands as yet another in the string of cases showing the CFTC’s commitment to actively police the virtual currency markets and protect the public interest. In addition, the criminal indictment and sentence reaffirms the CFTC’s commitment to working in parallel with our partners at the Department of Justice to root out misconduct in these markets.”

Twitter user @IamNomad wrote a thread describing Kim’s actions, concluding, “Moral of the story: If you’re sh*tty at trading or on a serious losing streak, just stop. Don’t revenge trade, you only lose more. As Kim proved – even if you commit fraud, you’ll still be a terrible trader.”

Earlier this month, the U.S. Securities and Exchange Commission (SEC) charged Zachary Coburn, the founder of crypto token trading platform EtherDelta, with operating an unregistered securities exchange. He agreed to pay up to USD 400,000 in fines for an 18 month operating period.