A New York federal court has ordered New York trading firm Gelfman Blueprint and its Chief Executive Officer Nicholas Gelfman to pay over USD2.5 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 (pictured), the CFTC’s Director of Enforcement, says: “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.”
Court Orders find that from approximately 2014 to approximately January 2016, Defendants Gelfman and GBI, by and through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than USD600,000 from at least 80 customers. As stated in the Orders, the customers’ funds supposedly were for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by the Defendants’ computer trading program called “Jigsaw.” In fact, as the Orders indicate, the strategy was fake, the purported performance reports were false, and – as in all Ponzi schemes – payouts of supposed profits to GBI Customers in actuality consisted of other customers’ misappropriated funds. Also, the Consent Order finds that Gelfman was liable as a controlling person for GBI’s violations, and the Default Order finds that GBI was liable as a principal for the violations of Gelfman and its other officers, agents, and employees.
The Orders find that, to conceal their trading losses and misappropriation, the Defendants made and provided false performance reports to pool participants, including statements that created the appearance of positive Bitcoin trading gains, when in truth Jigsaw trading account records reveal only infrequent and unprofitable trading. The Orders also find that Gelfman, in order to conceal the scheme’s trading losses and misappropriation, staged a fake computer “hack” that supposedly caused the loss of nearly all customer funds.
In addition to requiring GBI and Gelfman, respectively, to pay USD554,734.48 and USD492,064.53 in restitution to customers and USD1,854,000 and USD177,501 in civil monetary penalties, the Orders impose permanent trading and registration bans on GBI and Gelfman and permanently enjoin them from further violations of the Commodity Exchange Act and CFTC Regulations, as charged.