Bitcoin (BTC) Ponzi Scheme to Pay $2.5M in Penalties, Orders US Court

The ruling is part of the first-ever CFTC anti-fraud enforcement action involving cryptocurrencies.

A US judge from a federal court in New York has ordered Nicholas Gelfman and his cryptocurrency hedge fund Gelfman Blueprint Inc. (GBI) to pay $2.5 million in civil penalties and restitution, Commodity Futures Trading Commission (CFTC) said on Thursday. Justice P. Kevin Castel accepted CFTC charges of fraud, misappropriation and the issuance of false Bitcoin investment reports to unsuspecting investors after a court battle that lasted more than a year.

The Commission’s Virtual Currency Task Force led the investigation against GBI and Gelfman.

“The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets,” CFTC explained in its statement.

At least eighty clients lost around $600,000 by taking part in the GBI Bitcoin (BTC) investment platform from 2014 until January 2016, according to the Commission. The company put their money in a pooled BTC commodity fund and claimed that it could guarantee significant profits by using a high-frequency algorithmic trading strategy, called “Jigsaw.” The strategy was fake, according to CFTC investigators as the “Jigsaw” trading records were infrequent and unprofitable. GBI and its CEO Gelfman issued false performance reports and staged a hack that supposedly led to the stealing of all of the clients’ funds.

“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 monetary penalties, the Orders impose permanent trading and registration bans on GBI and Gelfman and permanently enjoin them from further violations of the Commodity Exchange Act and CFTC Regulations, as charged,” CFTC said.

In September last year, CFTC issued administrative action against GBI and Gelfman. The order was described as the Commission first anti-fraud activity involving digital assets.