New York trading firm Gelfman Blueprint Inc. and its chief executive officer Nicholas Gelfman have been ordered to fulfil a penalty of $2.5 Million in civil monetary penalties and restitution. The penalty has been filed by the Commodity Future Trading Commission (CFTC) and it is the first anti-fraud enforcement action involving bitcoin.
A Ponzi scheme was operated from 2014 to January 2016 by litigants Gelfman and GBI through their officers, agents and employees. The scheme illegally solicited more than $600,000 from about 80 customers. The defendants’ computer trading program called “jigsaw” is an algorithmic high-frequency trading strategy in which the customers’ funds are placed in a pooled commodity fund. The performance reports published were falsely professed, the strategy was a forgery and like in all Ponzi Schemes the profits of the GBI customers consisted of embezzled funds of other customers. Gelfman was held responsible for violating the law through his company, GBI.
To attract and keep customers the company mislead the public by releasing fake performance reports which included statements that made bitcoin gains appear positive. Whereas it has been found that the company only has infrequent and unprofitable trading. It has also been reported that in order to keep the company running, Gelfman also presented a fake “computer hack” to hide the schemes’ trading losses, performance reports and misappropriations. This cost its customers a huge amount because this was the reason behind all their losses
The CFTC’s director of enforcement, James McDonald proudly claims that the case has marked another victory in the area of virtual currency. He continues by saying that the CFTC is determined and never fails to prove its skills to identify the bad actors in the cryptocurrency market and hold them responsible. He further thanks and appreciates the commission for their tireless work.
The company and Gelfman have been asked to pay $ 554,734.48 & $492,064.53 to compensate its customers. It also has to pay $1,854,000 and $177,501 in the civil monetary penalty.
A permanent ban has been imposed on GBI and Gelfman and the Commodity Exchange Act and CFTC have ordered them to permanently enjoin them.