Bitcoin Ponzi scheme busted as CFTC continues crypto clampdown

The CFTC says it is determined to identify bad actors in virtual currency markets and hold them accountable

A New York federal court has ordered Gelfman Blueprint and its CEO Nicholas Gelfman to stump up over $2.5 million in civil monetary penalties and restitution in what is the first anti-fraud enforcement action involving Bitcoin filed by the Commodity Futures Trading Commission (CFTC).

James McDonald, the CFTC’s Director of Enforcement, comments: “This case marks yet another victory for the Commission in the virtual currency enforcement arena. As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable. I’m grateful to the members of Enforcement’s Virtual Currency Task Force for their tireless work on these matters.”

Ponzi scheme

From 2014 through to 2016, Gelfman and GBI operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers. The customers’ funds supposedly were for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by a computer trading programme called Jigsaw. But payouts of supposed profits actually consisted of other customers’ misappropriated funds.  

To conceal trading losses and misappropriation, Gelfman made and provided false performance reports to pool participants, including statements that created the appearance of positive Bitcoin trading gains, when in reality the Jigsaw trading account records reveal only infrequent and unprofitable trading. In order to conceal the scheme’s trading losses and misappropriation, he also staged a fake computer hack that supposedly caused the loss of nearly all customer funds.  

In addition to requiring GBI and Gelfman to pay $554,734.48 and $492,064.53 respectively to customers and $1,854,000 and $177,501 in civil monetary penalties, the two have been handed permanent trading and registration bans and are permanently enjoined from further violations of the Commodity Exchange Act and CFTC regulations.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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