Patrick McDonnell was sentenced to 33 months in federal prison Thursday after pleading guilty to charges of defrauding investors in his crypto trading firm CabbageTech, otherwise known as Coin Drop Markets.
McDonnell was also ordered to pay back his victims $224,352, according to the U.S. Attorney's Office for the Eastern District of New York. Thursday’s sentencing caps McDonnell’s back-to-back legal fights with the federal government, which saw the 47-year-old New York resident in civil and then criminal court on fraud charges. He pleaded guilty in June 2019, a press release stated.
Both cases stemmed from his tenure as CabbageTech CEO, where he defrauded victims of over $200,000, according to prosecutors.
Thursday's release claimed he stole bitcoin, litecoin, ethereum and verge from 10 victims under the alter-ego “Jason Flack.” New victims were solicited on social media. While McDonnell promised investors would profit, he instead provided false financial statements, prosecutors sai.
The CabbageTech platform started in May 2016, according to prosecutors. By 2018 the government was taking notice.
That January, the Commodity and Futures Trading Commission (CFTC) filed a civil suit against McDonnell, accusing him of defrauding investors. It based its right to enforce on a 2014 Internal Revenue Service ruling that bitcoin and other “convertible virtual currencies” are commodities.
This definition had never been tested in court before but a judge soon ruled in the CFTC’s favor, creating a precedent for the IRS rule and bolstering the regulator’s subsequent enforcement actions across the space. McDonnell was eventually ordered to pay $1.1 million.
The Justice Department followed with criminal action. It was assisted by the CFTC’s previous work and secured a guilty plea from McDonnell in June 2019, according to a press release.
“This office will continue to vigorously prosecute white-collar criminals who defraud the investing public,” Richard P. Donoghue, U.S. Attorney for the Eastern District of New York, said in a statement Thursday.