Federal Court Fines Bitcoin Ponzi Schemer $2.5 Million

By:
Chris Gaetano
Published Date:
Oct 19, 2018
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A federal judge has ordered New York-based company Gelfman Blueprint, Inc. (GBI) and its CEO, Nicholas Gelfman, to pay more than $2.5 million for running a bitcoin-based Ponzi scheme, in a matter that was filed by the Commodity Futures Trading Commission (CFTC). The CFTC said it was the first anti-fraud enforcement action involving bitcoin filed by the agency.

While the matter involved the high-tech world of cryptocurrency, the scam itself was classic Ponzi: Between 2014 and 2016, the defendants solicited more than $600,000 from at least 80 customers for a supposed investment opportunity in the digital currency. The company told customers that their money would be pooled into a commodity fund that was said to use a high-frequency algorithmic trading strategy called "Jigsaw." But the CFTC said that everything connected with this fund was fake. The strategy was fake. The performance reports were fake. The profits were fake.

In textbook Ponzi scheme fashion, any money paid out of the fund came solely from new investors paying in. The rest was simply pocketed by Gelfman and his company. When losses became too difficult to ignore, the CFTC said that Gelfman staged a fake computer hack that explained why, suddenly, the fund had barely any money.

In addition to requiring GBI and Gelfman, to pay, respectively, $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, the judge's 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.

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