The U.S. Commodity Futures Trading Commission (CFTC), an independent agency responsible for monitoring U.S. derivatives markets, recently filed a lawsuit against a Brooklyn, New York trader for allegedly running a Bitcoin Ponzi scheme. This is reportedly the agency’s first bitcoin-related lawsuit.
The defendant, Nicholas Gelfman, is the head trader and chief executive at Gelfman Blueprint Inc. (GBI), a New York-based firm that, according to CFTC’s lawsuit, “fraudulently solicited” investments from approximately 80 people between 2014 and 2016. The investments totaled over $600,000.
Supposedly, GBI “employed a high-frequency, algorithmic trading strategy” called Jigsaw that promised to net investors profits between 7% to 9% in bitcoin. In reality, the CFTC alleges that Gelfman’s strategy was a cover-up for a Ponzi scheme, in which the money some customers invested was used to pay early investors. The CFTC wrote:
“In fact, as charged in the CFTC Complaint, 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 try to prove investors their money was safe, Gelfman reportedly distributed false account statements, in which he told them they were making steady gains from Bitcoin trading. Based on these statements, the Ponzi scheme operators then paid themselves thousands from fees. In reality, Gelfman’s trading account records show infrequent and unprofitable trades.
The agency further claims that, in order to escape the whole situation and put an end to the Ponzi scheme, Gelfman claimed that the company had been hacked and that all customer funds had been stolen.
Paying attention to bitcoin misuse
Although this was the first lawsuit filed by the CFTC, the agency’s Director of Enforcement, James McDonald, stated that as part of its commitment to Fintech innovation, it would now pay careful attention to scammers misusing the cryptocurrency, and to work hard in order to remove bad actors from cryptocurrency markets.
The CFTC is looking to, among others, provide full restitution to defrauded investors, and to get GBI to pay the appropriate civil monetary penalties. If convicted, Gelfman could face up to 20 years in prison. McDonald stated:
“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.”