US Federal Court Orders Bitcoin Trading Firm To Pay More than $2.5 Million

CFTC, the U.S. Commodity Futures Trading Commission has won a judicial fight against a company for running a Ponzi scheme focused around bitcoin. A New York federal court has directed New York corporation Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman to pay more than $2.5 million in public financial penalties and compensation in what was the first anti-fraud crackdown linking Bitcoin filed by the Commodity Futures Trading Commission (CFTC).

According to a CFTC press release published on Thursday (October 18, 2018), the parties – GBI and Gelfman, will give about $2.5 million in restitution and civil monetary penalties to the sufferers. Out of that total, $554,734.48 and $492,064.53 is for compensation, while $1,854,000 and $177,501 is for civil financial penalties.

This judgment came in connection with a civil enforcement action filed by the CFTC on Sept. 21, 2017. The CFTC Complaint claimed that from about January 2014 to January 2016, GBI and its CEO Gelfman, ran a Bitcoin Ponzi scheme in which they fraudulently requested more than $600,000 from nearly 80 people, probably for position in a merged stock fund that purportedly used a high-frequency, algorithmic dealing procedure. This was achieved by Defendants’ computer exchanging program named “Jigsaw.”

The CFTC had sought the compensation for defrauded pool members and disgorgement of profits from infringements of the Commodity Exchange Act and CFTC Regulations. It had sought civil financial penalties, dealing bans, and a strong directive against anticipated violations of federal commodities laws. The CFTC had said that clients interested in virtual currency, assuring them the chance to invest in Bitcoin when in reality they only got into the Defendants’ Ponzi scheme.

CFTC said that this policy was fake and the purported execution stories were false, and — as in all Ponzi schemes — dividends of assumed profits to GBI clients, in reality, consisted of other customers’ stolen funds.

CFTC Director of Enforcement Comments

James McDonald, the CFTC’s Director of Enforcement, stated:

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 Orders stated that to cover GBI’s trading failures and frauds, the company and its CEO tendered and gave false administration reports to pool participants, including records that generated the image of concrete Bitcoin trading profits, when in reality it was fake. The Orders also notice that Gelfman, in order to hide the scheme’s trading losses and misappropriation, staged an artificial computer “hack” that probably caused the loss of nearly all customer funds.

The CFTC has also cautioned that orders demanding repayment of money to sufferers may not result in the return of any money because the criminals may not have adequate funds or assets. It further stated that it will continue to work actively for the security of consumers and to make sure that the lawbreakers are held liable. It has also acknowledged the help and support of the New York County District Attorney’s Office and the Finland Financial Supervision Authority.

The purpose of the Commodity Futures Trading Commission (CFTC) is to promote clear, honest, competitive, and financially fair markets. A few days ago, Brian Quintenz, a commissioner at CFTC had warned smart contract coders over the predictive code. He said that smart contracts are manageable, hence developers can modify them to foretell approaching results. Smart contracts are nearly boundless in their applicability to the amount they can even be utilized to replicate traditional financial instruments.

He had further explained that smart contract applications have the potential to start new markets and design capabilities in existing ones. They also foster various subjects of accountability. Hence, under various facts, a strong case could be made that the code developers supported and encouraged violations of CFTC regulations. As such, it could prosecute those people for wrongdoing.

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