In landmark antifraud case related to bitcoin, Gelfman Blueprint’s CEO admitted to charges
A federal court ordered a New York trading firm to pay $2.5 million (R35.60 million) in fines and restitution for orchestrating a Ponzi scheme that defrauded at least 80 customers who thought they were investing in bitcoin.
The Commodity Futures Trading Commission filed charges in this first ever antifraud case related to bitcoin in September 2017. The court ruled that Staten Island-based Gelfman Blueprint Inc. and its chief executive, Nicholas Gelfman, solicited more than $600,000 (R8 544 507.24) from retail investors between 2014-2016 by claiming to use a high-frequency trading computer program that would yield profitable returns investing in bitcoin.
Like other Ponzi schemes, the firm paid some investors using other investors’ money. Gelfman Blueprint concealed its fake trading strategy with false performance reports that “created the appearance of positive Bitcoin trading gains,” the CFTC said.
Gelfman Blueprint marketed its investments with returns typical of other Ponzi schemes, saying that customers typically earned “7-11% monthly return on their bitcoins” or “7-9% profit a month on their Bitcoin Investments.”
The CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable,” the agency’s enforcement director James McDonald said in a statement.
Mr. Gelfman didn’t immediately respond to a request for comment.
The case is the latest by regulators and federal prosecutors who are eager to tamp down on illegal activity in cryptocurrency markets.
In September, a federal court in Massachusetts affirmed the CFTC’s power to prosecute fraud involving cryptocurrency and didn’t limit its jurisdiction to cases of market manipulation.
The court’s ruling in the Gelfman case said the firm engaged in only infrequent and unprofitable bitcoin trading while falsely reporting gains to his customers.
To conceal the trading losses and misappropriation of customer money, the firm faked a computer hack in October 2015 that supposedly wiped out most customer funds. According to court documents, trading account records show a bitcoin balance of zero for the months leading up to October 2015.
As part of the court settlement, Mr. Gelfman admitted to the charges against him and his firm and agreed not to appeal the court’s decision, according to a consent order filed in the Southern District of New York.
The CFTC said victims of the scheme may not receive restitution because Gelfman Blueprint and Mr. Gelfman don’t have sufficient funds to repay them.
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