A New York federal court has ordered New York corporation Gelfman Blueprint (GBI) and its CEO Nicholas Gelfman to pay in total over $2.5 million in civil monetary penalties and restitution in what was the first anti-fraud enforcement action involving bitcoin filed by the Commodity Futures Trading Commission (CFTC).
From approximately 2014 through 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 $600k from at least 80 customers. The customers’ funds supposedly were for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by defendants’ computer trading program called “Jigsaw.”
In fact, 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. To conceal 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, when in truth Jigsaw trading account records reveal only infrequent and unprofitable trading. Moreover, 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.