A New York federal court has ordered Nicholas Gelfman to pay $2.5 million in fines and restitution for operating a Ponzi scheme through his Staten Island, New York-based Gelfman Blueprint Inc. It’s the first bitcoin-related fraud case for the CFTC.
Between 2014 and 2016, Gelfman collected more than $600,000 from 80 investors by promising “7% to 11% monthly return on their bitcoins,” the Commodity Futures Trading Commission (CFTC) revealed in a statement.
James McDonald, the CFTC’s Director of Enforcement, said the agency will continue to crack down on scams in the decentralized, unregulated cryptocurrency market.
“This case marks yet another victory for the Commission in the virtual currency enforcement arena,” McDonald said. “The CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”
Staged Fake Computer ‘Hack’ To Cover Losses
Nicholas Gelfman admitted that he provided false performance reports to investors to make it seem as if his bitcoin trading was successful, when in fact, it was unprofitable.
Gelfman also made payouts to gullible investors by using other customers’ misappropriated funds — the hallmark of a Ponzi scheme.
“To conceal the scheme’s trading losses and misappropriation, [Gelfman] staged a fake computer ‘hack’ that supposedly caused the loss of nearly all customer funds,” the CFTC discovered.
Over the past few months, the CFTC and the Securities and Exchange Commission have issued statements warning investors about potential price manipulation and fraud in the crypto market.
In May 2018, the U.S. Department of Justice launched a criminal investigation into bitcoin price manipulation amid erratic price fluctuations.
True cryptocurrency evangelists — like the Winklevoss twins, Tyler and Cameron, and Galaxy Digital CEO Mike Novogratz — support appropriate federal oversight, saying regulatory scrutiny will legitimize the industry by ridding it of scam artists and bad actors.
“Weeding out the bad actors is a good thing, not a bad thing, for the health of the market,” Novogratz said, the Inquisitr previously reported.
Cameron Winklevoss, president of cryptocurrency exchange Gemini, agreed. “We welcome any inquiry that serves to foster rules-based marketplaces and deter bad actors,” he said.
Study: Bitcoin Prices Were Artificially Inflated
In June 2018, University of Texas finance professor John Griffin published a report suggesting that bitcoin’s incredible price spikes in 2017 were the result of market manipulation and not authentic investor enthusiasm.
In a 66-page research paper entitled Is Bitcoin Really Un-Tethered?, Griffin said at least 50 percent of the increase in bitcoin prices in 2017 was manipulated using tether, another digital currency pegged to the U.S. dollar.
Griffin, who specializes in spotting financial fraud, said evidence suggests there was coordinated price manipulation designed to keep bitcoin prices artificially high.