US Judge Orders Trading Firm And CEO To Pay $2.5M USD For Bitcoin Ponzi Scheme

Crime, News | October 19, 2018 By:

A US Federal Court has ordered a New York resident and his company to pay a fine of over $2.5 million for running a bitcoin Ponzi scheme.

In September 2017, the US Commodity Futures Trading Commission (CFTC) filed a federal civil enforcement action against Nicholas Gelfman and his company, Gelfman Blueprint, Inc. (GBI), charging them with fraud, misappropriation, and issuing false account statements in connection with solicited investments in bitcoin.

According to the CFTC, between 2014 and early 2016, GBI and Gelfman operated a bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from approximately 80 persons, supposedly for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy, executed by a computer trading program called “Jigsaw.” The CFTC said the trading strategy was fake, the purported performance reports were false, and client funds were used to repay previous investors.

To conceal trading losses and misappropriation, Gelfman reportedly provided false performance reports to pool participants to show false records of profitable bitcoin trades. Gelfman also staged a fake computer hack designed to conceal trading losses and misappropriation.

On Thursday, New York federal judge P. Kevin Castel ruled in favor of the CFTC, ordering GBI and Gelfman, respectively, to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties. The court also imposed permanent trading and registration bans on GBI and Gelfman. The CFTC, however, cautions that the ruling may not result in the recovery of any money lost because the defendants may not have sufficient funds or assets.

“This case marks yet another victory for the Commission in the virtual currency enforcement arena,” said James McDonald, CFTC Director of Enforcement. “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.”