U.S. Commodity Futures Trading Commission (CFTC) announced today they have filed civil charges against Nicholas Gelfman and a New York corporation Gelfman Blueprint, Inc. (GBI).
The company apparently promised “7-9% monthly return on their bitcoins,” stating they were a “Bitcoin denominated hedge fund built on a high-frequency trading algorithm.” CFTC said:
“From approximately January 2014 through approximately January 2016, GBI and Gelfman, company Chief Executive Officer and Head Trader, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from approximately 80 persons, supposedly for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy, executed by Defendants’ computer trading program called “Jigsaw.”
In fact, as charged in the CFTC Complaint, 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.”
This is one of the first known enforcement action taken by CFTC with the regulator seemingly taking a leading role in this space, so claiming jurisdiction over others. James McDonald, the CFTC’s Director of Enforcement, said:
“Through its work across the Commission, and as exemplified by the work of LabCFTC, the CFTC has demonstrated its continued commitment to facilitating market-enhancing FinTech innovation.
Part of that commitment includes acting aggressively and assertively to root out fraud and bad actors in these areas. As alleged, the Defendants here preyed on customers interested in virtual currency, promising them the opportunity to invest in Bitcoin when in reality they only bought into the Defendants’ Ponzi scheme. We will continue to work hard to identify and remove bad actors from these markets.”
Regulators have been criticized for being slow to act in clear fraud or criminal cases, while at the same time denying ordinary law abiding citizens such basic trading facilities as margins, or in the case of ICOs, denying them the certainty of a regulated status.
This action by CFTC might suggest a change in approach after the coming in power of the conservative administration, with its chairman, J Christopher Giancarlo, often praising this space and blockchain technology. While Commissioner Brian Quintenz said regarding blockchain technology that:
“Crucial and fascinating questions need to be explored and answered in areas like automated trading, distributed ledger technology, data harmonization, and cybersecurity, and I hope that the [committee] will provide leadership on these matters.”
Whether they will actually be able to do so remains to be seen as the somewhat balkanized regulatory environment in USA has failed so far to take a more streamlined approach.