Bitcoin Ponzi Scheme Ordered to Pay Over $2.5 Million Penalty In New York

A  New York federal court has ordered Gelfman Blueprint, a Bitcoin-denominated hedge fund, and its CEO Nicholas Gelfman to pay over $2.5 million in civil monetary penalties and restitution in the first Bitcoin fraud action filed by the Commodity Futures Trading Commission (CFTC).

CFTC First Bitcoin Fraud Action Results in $2.5 Million Penalty Over $600,000 Ponzi Scheme

CFTC’s first anti-fraud enforcement action involving Bitcoin found that Gelfman and its firm operated a Bitcoin Ponzi scheme from 2014 to January 2016, according to a press release.

The fraud was able to solicit over $600,000 from at least 80 customers. The customers’ funds were supposed to be placed in a pooled commodity fund using a high-frequency, algorithmic trading strategy called “Jigsaw,” which turned out to be fake.

All performance reports were false, according to the CFTC, and payouts to GBI customers consisted of other customers’ misappropriated funds. James McDonald, the CFTC’s director of enforcement, promised to continue to enforce the law in the cryptocurrency arena.

“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.”

Law enforcement found that the defendant’s real trading account records revealed only infrequent and unprofitable trading. Gelfman tried to conceal the Ponzi scheme by staging a fake computer “hack” that supposedly caused the loss of nearly all funds.

Gelfman and his firm are now ordered to pay, respectively, $492,064.53 and $554,734.48 in restitution to customers and $177,501 and $1,854,000 in civil monetary penalties, amounting to over $2.5 million. Moreover, the defendant is now banned from trading in the United States for life.

The agency cautioned that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC said it will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

In July 2018, the CFTC claimed a Bitcoin pool operator has fraudulently solicited almost $500,000 worth of Bitcoin from at least 127 individuals who expected to participate in a pooled investment vehicle for trading commodity interests.

The regulator requires Dillon Michael Dean and his U.K.-registered company, The Entrepreneurs Headquarters Limited (TEH), to pay almost $500,000 in restitution to customers plus a sum of $1,497,792.12 civil monetary penalty, bringing the total amount owed to a hefty $2 million.

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