Crypto Scam Alert: CFTC Launches Lawsuit Against Mosaic Exchange

  • September 29, 2023

In a significant move targeting the crypto industry, the US Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Mosaic Exchange Limited, a Pennsylvania limited liability company, and its owner and Chief Executive Officer, Sean Michael.

The complaint alleges that the defendants operated a fraudulent digital asset commodity scheme, deceiving investors and misappropriating customer funds.

Alleged Fraudulent Crypto Scheme

According to the complaint, the defendants fraudulently solicited and induced 17 individuals from the United States and other countries to invest hundreds of thousands of dollars’ worth of Bitcoin (BTC) and other funds. 

These funds were supposed to be traded on behalf of the customers in Bitcoin and other crypto assets. However, the defendants allegedly misappropriated the customer’s funds for their benefit.

The case background reveals that from approximately February 2019 to June 2021, the defendants made false representations about Mosaic Exchange. They claimed that Mosaic was a cryptocurrency trading platform with substantial assets under management, offering a proprietary trading algorithm that boasted an 82% accuracy rate. 

Additionally, they advertised significant profit margins ranging from “20% to 60% per month” and “10% to 50+ per month.” The defendants also purported partnerships or broker agreements with specific cryptocurrency trading exchanges.

However, as alleged in the complaint, these representations were fraudulent. Mosaic Exchange did not possess the claimed assets under management or have a track record of profitable trading as advertised.

According to the CFTC, Mosaic incurred losses when trading on behalf of customers. Furthermore, the company did not have the partnerships or broker agreements it had promoted. Consequently, several customers suffered a complete loss of their invested funds.

CFTC Commissioner Calls For Stronger Regulations

On this matter, Commissioner Kristin N. Johnson has issued a statement emphasizing the importance of “protecting investors from fraudulent activities” in the nascent crypto industry.

Commissioner Johnson highlights the inherent risks of crypto fraud, emphasizing the need to protect vulnerable investors. Johnson references a blockchain analysis firm, Chainalysis, which identified scams as the most prevalent form of cryptocurrency-based crime. 

The report estimated that fraud resulted in over $5.9 billion in losses in the previous year alone. Investment scams, in particular, were identified as the top scams, where fraudsters lure victims with promises of extraordinary returns. 

Johnson highlights the case of Mosaic Exchange, which traded digital asset derivatives on platforms like BitMEX and Binance, platforms that the CFTC has previously charged with regulatory violations. 

In light of these developments, Commissioner Johnson believes that the CFTC should leverage its existing authority to introduce regulations that close any potential gaps in oversight within these evolving market structures.

As a result, the CFTC seeks various remedies through its litigation, including restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The total crypto market cap recovery on the daily chart. Source: TOTAL on TradingView.com

Featured image from Shutterstock, chart from TradingView.com 

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