NY court orders crypto scammer to pay $3 million

The U.S. District Court for the Southern District of New York has ordered the perpetrator of a BTC Ponzi scheme to pay about $3 million in penalties and restitution.

In a press release, the U.S. Commodity Futures Trading Commission (CFTC), which filed the anti-fraud enforcement action against Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman, noted that it was the first suit of its kind, of a scam involving BTC, filed by the agency, back in September 2017.

Gelfman was said to have operated a scheme in which from 2014 to 2016, he solicited more than $600,000 from at least 80 people. Gelfman had led his clients to believe that their funds were pooled and traded using a strategy derived from a computer trading program called ‘Jigsaw.’ “In fact, as the [court] Orders indicate, the strategy was fake, the purported performance reports were false, and—as in all Ponzi schemes—payouts of supposed profits to GBI Customers in actuality consisted of other customers’ misappropriated funds,” the CFTC said.

Gelfman was said to have also staged a computer hack that supposedly resulted in the loss of funds.

CFTC Director of Enforcement James McDonald said, “the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”

CFTC stated that even though GBI and Gelfman were made to pay $554,734.48 and $492,064.53, respectively, in restitution to customers, and $1,854,000 and $177,501 in civil monetary penalties, “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.”

Apart from the monetary penalties, the court also banned permanently GBI and Gelfman from trading.

The commission considers cryptocurrencies as commodities, and therefore falling under its scope. However, the agency may soon seek authority of blockchain applications beyond just cryptocurrencies.

CFTC Commissioner Brian Quintenz recently warned of smart contracts, which like cryptocurrencies use blockchain technology, being used as “predictive event contracts” by which future events could be betted on, which would put such contracts under the mandate of the CFTC, and could hold smart contract developers liable.