Fraud: CFTC Charges Bitcoin Ponzi Scheme in Enforcement Action

The US Commodity Futures Trading Commission (CFTC) has filed a federal civil enforcement action in the U.S. District Court for the Southern District of New York against Defendants Nicholas Gelfman, of Brooklyn, New York, and Gelfman Blueprint, Inc. (GBI), charging the duo with fraud, misappropriation, and issuing false account statements in connection with solicited investments in Bitcoin.

The CFTC alleges that from about January 2014 through January 2016, GBI and Gelfman, company Chief Executive Officer and Head Trader, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from approximately 80 persons. The solicitation was supposedly for placement in a pooled commodity fund that supposedly employed a high-frequency, algorithmic trading strategy, executed by computer trading program called “Jigsaw.” The CFTC complaint says the strategy was bogus and performance reports were simply faked. The Defendants allegedly used incoming funds to prop up the Ponzi scheme. Same as it ever was.

The CFTC further alleges that to conceal the trading losses and misappropriation, Defendants made and provided false performance reports to pool participants, including statements that created the appearance of positive Bitcoin trading gains. The reality was apparently far different apparently as the Jigsaw trading account records revealed only “infrequent and unprofitable trading”.

To cover their tracks, the CFTC alleges that Gelfman staged a fake computer “hack” designed to conceal trading losses and misappropriation.

“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,” announced James McDonald, the CFTC’s Director of Enforcement. “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.”

The CFTC seeks restitution to defrauded pool participants, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.

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