$3 Million Fine For Ponzi Scheme

Dawid Paluch
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Gelfman Blueprint Inc. (GBI), cryptocurrency hedge fund and its CEO Nicholas Gelfman have to pay over $3 million penalty for Ponzi scheme. On Thursday, the New York Federal Court gave the ruling on this case.

A Ponzi scheme is a form of a fraud. Charles Ponzi was an Italian con artist in the United States and Canada. He became known in the 1920s for his money schemes. He gathered funds from investors, promising them a 50% profit from investment within 45 days, or a 100% profit within 90 days. Ponzi was paying earlier investors using money from later investors. In the Ponzi scheme, investors may be led to believe that the profits come from product sales, but in reality, they get money from other investors. The scheme is able to maintain as long as there are new investors.

Lesson number one: Don’t underestimate the other guy’s greed

Gelfman Blueprint Inc., a company based in New York, is a Bitcoin hedge fund. The corporation began its operation in 2014. By 2015, the firm had 85 investors and 2,367 BTC under management.

Everything collapsed in September 2017 when the United States Commodity Futures Trading Commission (CFTC), a financial regulatory agency, filled its first-ever charges against the GBI. The motion accused the Bitcoin investment company of running a Ponzi scheme from 2014 to 2016. According to the CFTC, the startup lied to its customers. The GBI told investors that it had developed a computer algorithm called “Jigsaw”. The algorithm allegedly allowed for returns of investment. As it turned out, the whole operation was a fraud.

The scheme gathered $600,000 from roughly 80 clients.

Lesson number two: if there was a crime, there has to be a punishment

Yesterday, the CFTC released a statement concerning this topic. According to James McDonald, the CFTC’s Director of Enforcement:

“This case marks yet another victory for the Commission in the virtual currency enforcement arena.  As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable”.

Federal Judge ruled in favor of the CFTC. Now, Gelfman and his company have to pay over $3 million in penalties.

The court ordered Nicholas Gelfman to pay $492,000 and the GBI to pay $550,000 in reparation to deceived customers. Also, the corporation has to pay $1.85 million in penalties. Gelfman will pay $177,000 in fines. The federal court put a permanent trading ban on the two.

Right now, it’s not clear if Gelfman and the GBI will pay restitution to their former clients. The CFTC pointed out that the convicts possibly don’t have enough funds for retributions and penalties.

The United States is tracking all criminal movements in the crypto world. On Monday, we wrote a story about the ICO ban in North Dakota. On Friday, we reported on Bitcoin auction organized by U.S. Marshals Service.

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