Crypto Hedge Fund Fined $2.5 Million for ‘Operating a Bitcoin Ponzi Scheme’
On Thursday, October 18th, a New York federal court has ordered cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO, Nicholas Gelfman, to pay a fine of over $2.5 million for operating a fraudulent Ponzi scheme.
Nicholas Gelfman, who had created a corporation by the name of Gelfman Blueprint, Inc. started operations in 2014, showed that within a year of operation it had registered 85 users and was managing 2,367 BTC.
Bitcoin hedge fund Gelfman claimed to work on an algorithm that enabled high-frequency trading. Case findings reveal that the firm fraudulently acquired $600,000 from 80 customers and went on to fake a ‘computer hack’ to conceal trading losses.
The US Commodity Futures Trading Commission (CFTC) originally came after the company in September of last year. At the time, GBI told its customers that it was using an algorithm called ‘jigsaw’ to earn substantial returns on investors’ funds.
In September 2017, the CFTC filed a federal civil enforcement action in the U.S. District Court against Defendants Nicholas Gelfman Blueprint, Inc. (GBI), charging them with “fraud, misappropriation, and issuing false account statements in connection with solicited investments in Bitcoin, a virtual currency.”
However, their activity was thoroughly investigated and it was found out that the defendants were funneling a couple of thousands of dollars to make the gains seem true when in reality the majority of their trades were unprofitable.
James McDonald, the CFTC’s Director of Enforcement, commented:
“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.”
The current order charges GBI and Gelfman to pay over $2.5 million in civil monetary penalties and restitution. GBI and Gelfman are ordered to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, respectively.
According to the court’s decision, after the financial penalties are paid, the company will receive a permanent registration and trading ban.
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