Bitcoin Ponzi Schemer must pay $ 2.5 million, the rules of the court
Bitcoin Ponzi Schemer must pay $ 2.5 million, the rules of the court
WASHINGTON: A federal court ordered a New York commercial company to pay $ 2.5 million in fines and restitution for organizing a Ponzi scheme that defrauded at least 80 customers who thought they were investing in bitcoin.
The Commodity Futures Trading Commission filed charges in this first anti-fraud case related to bitcoin in September 2017. The court ruled that Gelfman Blueprint Inc., based in Staten Island, and its executive director, Nicholas Gelfman, requested more than $ 600,000 to retail investors between 2014 and 2016 by stating that it uses a high frequency trading software that would produce profitable returns when investing in Bitcoin.
Like other Ponzi schemes, the company paid some investors using the money of other investors. Gelfman Blueprint hid its fake trading strategy with false performance reports that "created the appearance of positive profits in Bitcoin operations," the CFTC said. Gelfman Blueprint marketed its investments with returns typical of other Ponzi schemes, and said that customers typically get "7-11% monthly return on their bitcoins" or "7-9% earnings per month on their Bitcoin investments."
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"The CFTC is determined to identify the bad actors in these virtual currency markets and hold them accountable," the agency's compliance director, James McDonald, said in a statement.
Mr. Gelfman did not respond immediately to a request for comments.
The case is the most recent of the federal regulators and prosecutors who are eager to control illegal activity in the cryptocurrency markets. In September, a The federal court of Massachusetts confirmed the power of the CFTC to process fraud related to cryptocurrency and did not limit its jurisdiction to cases of market manipulation.
The court ruling in the Gelfman case said that the firm only performed rare and unprofitable bitcoin operations, while falsely reporting profits to its clients.
To hide commercial losses and misappropriation of customers 'money, the company falsified a computer hack in October 2015 that allegedly eliminated most of the clients' funds. According to the court documents, the records of the commercial accounts show a bitcoin balance of zero in the months prior to October 2015.
As part of the settlement, Mr. Gelfman admitted the charges against him and his signature and agreed not to appeal the court's decision, in accordance with a consent order filed in the Southern District of New York. The CFTC said that the victims of the plan may not receive restitution because Gelfman Blueprint and Mr. Gelfman do not have sufficient funds to pay them back.
Write to Gabriel T. Rubin in gabriel.rubin@wsj.com
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