Gelfman Marks The First Anti-fraud Enforcement Action Involving Bitcoin.
Gelfman Blueprint Inc. have been hit with a momentous $2.5 million fine by a New York federal court for its operation in a Bitcoin Ponzi scheme. The New York corporation and the Chief Executive, Mr Nicholas Gelfman, will have to pay this civil monetary penalty and restitution to customers after the case was filed by the Commodity Futures Trading Commission. This fraudulent scheme is the first anti-fraud enforcement action involving Bitcoin to identify violations and see consequences in court.
The Commodity Futures Trading Commission filed their complaint against Gelfman Blueprint Inc. and Mr Gelfman, the Defendants, on September 21 2017. This case was resolved by the Order for Final Judgement by Default and the Consent Order for Final Judgement, which were entered on October 2 2018 and October 16 2019. The charges were resolved by Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York.
Beginning in 2014, the Defendants operated a Bitcoin Ponzi scheme and the defendants also uses their employees to continue the operation of the fraudulent scheme to take money from at least 80 investors. The Order states that more than $600,000 was solicited through the fraudulent Bitcoin Ponzi scheme. Their customers believed that their money would be placed in a pooled commodity fund for a high frequency algorithmic trading strategy. The defendants claimed that they would use a computer trading program that was called ‘Jigsaw’. But, the Orders show that this was a fraudulent scheme that ran until around January 2016, issuing fake performance reports and the profits were actually misappropriated funds from other investors. This included statements that gave the illusion that customers were enjoying positive trading gains in cryptocurrency. In fact, the truth was that trading was unprofitable and this was false. In addition to these fraudulent actions, the Orders found that Mr Gelfman embezzled the funds and staged a computer hack that would create a fake theft of customer funds.
The Consent Order found that Gelfman was liable for this fraudulent scheme as the controlling person of the corporation. The Default Order found that Gelfman Blueprint Inc. was liable as a principal for Mr Gelman’s actions, as well as other employees
As a consequence, the Defendants have been ordered to pay $554,734.48 as restitution to customers that were affected by this fraudulent Ponzi scheme, with Mr Gelfman also paying $492,064.53. A further $1,854,000 and $177,501 has been ordered for civil monetary penalties. Not only will the Defendants have to pay restitution and civil monetary penalties, but they are also subject to outright trading and registration bans that will come into effect immediately and will be permanent. This will prevent any further misuse in the cryptocurrency market and breaking the law under the Commodity Exchange Act, as well as the CFTC Regulations.
The CFTC Director of Enforcement, James McDonald, has said that this case is a cryptocurrency victory and demonstrates the willingness of the Commission to hold corporations and people that are abusing the virtual currency market accountable for their actions,
“Through its work across the Commission, and as exemplified by the work of LabCFTC, the CFTC has demonstrated its continued commitment to facilitating market-enhancing FinTech innovation. Part of that commitment includes acting aggressively and assertively to root out fraud and bad actors in these areas. As alleged, the Defendants here preyed on customers interested in virtual currency, promising them the opportunity to invest in Bitcoin when in reality they only bought into the Defendants’ Ponzi scheme. We will continue to work hard to identify and remove bad actors from these markets.”
This press release first appeared on the CFTC website.