It was announced last Thursday by the US Commodity Futures Trading Commission (CFTC) that two defendants were ordered by the US Commodity Futures Commission (CFTC), “to pay in total over $2.5 million in civil monetary penalties and restitution” in a bitcoin fraud case. Judge P. Kevin Castel of the US District Court for the Southern District of New York, is the one who gave the orders against New York corporation Gelfman Blueprint Inc. (Gbi) and its CEO Nicholas Gelfman. According to the commission, this case was “the first anti-fraud enforcement action involving bitcoin” filed by the CFTC.
The derivatives watchdog explained that “Gelfman was liable as a controlling person for Gbi’s violations” while “Gbi was liable as a principal for the violations of Gelfman and its other officers, agents, and employees.”
Sept. 21 is the date when the complaint was filed originally against the defendants. The CFTC wrote in Thursday’s announcement: “ In addition to requiring Gbi and Gelfman, respectively, to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil penalties, the orders impose permanent trading and registration bans on Gbi and Gelgman.”
The orders also “permanently enjoin them from further violations” of the CFTC Act and regulations. While the defendants are required to repay victims, the agency emphasized that the orders “may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets.”
From approximately 2014 to January 2016, “Gelfman and Gbi, by and through its officers and agents and employees, operated a Bitcoin Ponzi scheme,” the CFTC wrote. “They fraudulently solicited more than $600,000 from at least 80 customers.”
The scheme gave the assurance to place customers’ funds “in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by defendants’ computer trading program called ‘Jigsaw.’”
The CFTC noted that the defendants posted on social media statements such as “We are a software development firm, currently offering customers access to a high-frequency BTC trading program called ‘Jigsaw’ (2% weekly BTC return).”
The commission, however, asserted that: “The strategy was fake, the purported performance reports were false, and – as in all Ponzi schemes – payouts of supposed profits to Gbi customers in actually consisted of other customers’ misappropriated funds.”
In order to hide “trading losses and misappropriation,” the defendants “made and provided false performance reports to pool participants.” The CFTC described that statements showing positive bitcoin trading gains “when in truth defendants’ Jigsaw trading account records reveal only infrequent and unprofitable trading,” were among the fake reports.
It was additionally detailed by the orders that: “Gelfman, in order to conceal the scheme’s trading losses and misappropriation, staged a fake computer ‘hack’ that supposedly caused the loss of nearly all customer funds.”