Cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman have been convicted for floating a fraudulent Ponzi scheme. They were both ordered by a New York federal court to pay over $2.5 million for their complicity in the shady offshore investment fund, per an official press release. GBI is a denominated Bitcoin (BTC) hedge fund based in New York and incorporated in 2014. The company’s website stated that it had 85 customers and 2,367 BTC under management.
The Commodity Futures Trading Commission (CFTC) has been pursuing this case against GBI since September 2017 when it filed its first ever charges against the Bitcoin Investment Corporation for allegedly floating a Ponzi scheme from 2014 to 2016.
Substantial Returns or Losses?
The fraudulent Ponzi scheme misled investors into believing the company created a computer algorithm which facilitated substantial returns through a commodity fund. The computer algorithm called ‘Jigsaw’ has, however, been a scam used in ripping over 80 individuals of $600,000. The falsified trading profits were made possible using a fake computer “hack” to hide the scheme’s trading losses. Customers, as a result, forfeited their funds as they gave in to the well-fabricated figures.
GBI had consistently reported substantial gains while investors were swallowed the falsified returns reports hook, line and sinker. The CEO had all the while, been milking naive individuals who put their fortune in the scheme.
Commenting on the Commission’s determination to root out unscrupulous players who are perpetuating similar trades, the CFTC’s Director of Enforcement James McDonald said:
“Through its work across the Commission, the CFTC has demonstrated its continued commitment to facilitating market-enhancing FinTech innovation. 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 Defendant’s Ponzi scheme. We will continue to work hard to identify and remove bad actors from these markets.”
Latest Court Order
The Federal Court in New York ordered GBI and Gelfman 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.
Buoyed by its effort in bringing the culprits to justice, McDonald remarked that “this case marks yet another victory for the Commission in the virtual currency enforcement arena. As the string of cases show, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”
It will be recalled that the CFTC filed a similar lawsuit in the U.S. District Court for the Northern District of Texas against two defendants in September for the fraudulent solicitation of Bitcoin. The two defendants floated enterprises to cajole the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.
The first defendant hails from Arlington, Texas and manages Diamonds Trading Investment House while the second defendant, Kim Hecroft a native of Baltimore, Maryland owns First Options Trading. They were both accused of using their social media platforms to offer trading investments to unsuspecting clients.
In a case presided by Judge Rya W. Zobel, a District Court in Massachusetts classified crypto token as falling under the definition of a commodity to bring the situation under the purview of regulators. The principal defendant Randall Crater was accused by the CFTC for allegedly violating the Commodity Exchange Act (CEA) by manipulating investors to purchase ‘My Big Coin’ (MBC) through a series of misleading statements. 28 investors were purportedly defrauded of a total of $6 million after they had been made to believe that MBC was backed by gold reserves and was actively traded on various crypto exchanges.
In their ploy to reinforce the worth of the MBC which they used in conning investors, the defendants arbitrarily manipulated the value of the MBC to thwart the volatility in prices expected of normal cryptocurrencies. The counsel to the defendants attempted to argue that the token was not under the jurisdiction of the CFTC since it was neither a tangible good or service.
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