Another One Bites the Dust: Federal Court Bags $2.5M Bitcoin Ponzi Scheme

The US Commodity Futures Trading Commission (CFTC) originally came after the company in September of last year. At the time, GBI told its customers that it was using an algorithm called ‘jigsaw’ to earn substantial returns on investors’ funds. It was all a lie–the algorithm was fake, and the “returns” that some investors got consisted of the misappropriated funds of other investors.

Gelfman Staged a Fake ‘Hack’ to Cover Up Losses

According to the statement published by the CFTC, “defendants Gelfman and GBI, by and through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers.” Eventually, nearly all user funds were lost.

Over the course of the company’s existence, Gelfman provided false performance reports to pool participants to show false records of profitable BTC trades. At one point, Gelfman orchestrated a fake “hack” to try and explain the massive losses.

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

.@giancarloCFTC details to #FIAExpo the @CFTC’s record enforcement achievements this year:

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* Record # of actions;
* More penalties;
* Record # of large cases;
* More cases for manipulative conduct & spoofing;
* Record # of whistleblower awards;
* More C-Suite accountability.

— CFTC (@CFTC) October 17, 2018

Of the $2.5 million that Gelfman and GBI were ordered to pay, roughly $1 million will go towards customer restitution; the rest of the fines are civil monetary penalties.

The Second Company Operating as a Crypto Hedge Fund to Get Taken Down this Year

This is the second time in recent months that a US regulator has targeted a company operating as a cryptocurrency hedge fund. Last month, the SEC issued a cease-and-desist order to a hedge fund called ‘Crypto Asset Management’ and its founder, Timothy Enneking.

At the time, the SEC alleged that although the fund had described itself at one point as the ‘first regulated crypto asset fund in the United States’, it had never actually registered as an investment company.

These two cases may or may not be a part of ‘Operation Cryptosweep.’ The US SEC, CFTC, and a number of other financial regulators and law enforcement bodies in the North American Securities Administrators Association teamed up earlier this year under the Operation to eliminate fraud from the crypto space.

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