CTFC Cracks Down On Alleged Bitcoin Ponzi Scheme

The U.S. Commodity Futures Trading Commission announced it has filed civil fraud charges against a New York man and his company over an alleged bitcoin investment scheme.

Reuters reported that the CFTC has charged Nicholas Gelfman and Gelfman Blueprint, Inc. with fraud, misappropriation and issuing of false account statements. The charges allege that between 2014 and 2016, they fraudulently solicited more than $600,000 from some 80 people. The lawsuit was filed in the U.S. District Court for the Southern District of New York.

Gelfman, a Brooklyn resident and head trader at Gelfman Blueprint, took money from investors “for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy, executed by defendants’ computer trading program called ‘Jigsaw,’” according to a release from the CFTC.

The strategy turned out to be fraudulent, with Gelfman and the company providing their victims with false performance reports. “As in all Ponzi schemes, payouts of supposed profits to GBI customers in actuality consisted of other customers’ misappropriated funds,” the CFTC said.

Gelfman then attempted to cover up the scheme by faking a computer hack.

“Through its work across the Commission, and as exemplified by the work of LabCFTC, the CFTC has demonstrated its continued commitment to facilitating market-enhancing FinTech innovation,” said James McDonald, the CFTC’s director of enforcement. “Part of that commitment includes acting aggressively and assertively to root out fraud and bad actors in these areas. As alleged, the defendants here preyed on customers interested in virtual currency, promising them the opportunity to invest in bitcoin when in reality they only bought into the defendants’ Ponzi scheme. We will continue to work hard to identify and remove bad actors from these markets.”

In addition to restitution for the defrauded investors, the CFTC is seeking “disgorgement of benefits from violations of the Commodity Exchange Act and CFTC regulations, civil monetary penalties, trading bans and a permanent injunction against future violations of federal commodities laws.”