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A New York federal court has ordered New York corporation Gelfman Blueprint, Inc. (GBI) and its Chief Executive Officer Nicholas Gelfman of Brooklyn, New York, to pay in total over $2.5 million in civil monetary penalties and restitution, the U.S. Commodity Futures Trading Commission (CFTC) said in a press release published on October 18, 2018.

Bitcoin Hedge Fund and CEO Slapped With $2.5 Million Penalty for Ponzi Scheme

(Source: The Wall Street Journal)

A federal court ordered a New York trading firm to pay $2.5 million in fines and restitution for orchestrating a Ponzi scheme that defrauded at least 80 customers who thought they were investing in bitcoin. It’s the first Bitcoin-related fraud case for the Commodity Futures Trading Commission.

The order is the continuation of the initial anti-fraud enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC) against Gelfman Blueprint Inc. in September 2017.The CFTC charged GBI and its CEO, Nicholas Gelfman, for allegedly running a Ponzi scheme from 2014 to 2016, telling investors that it had developed a computer algorithm called “Jigsaw” which allowed for substantial returns through a commodity fund.James McDonald, the CFTC’s Director of Enforcement, said that this case makes another victory for the Commission when it comes to enforcing regulations in the cryptocurrency industry. “As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable,” he said according to the CFTC release.

Gelfman Settled, More High-Profile Cases to Follow

In the settlement, Gelfman admitted to the charges against him and his firm and agreed not to appeal the decision by the Southern District of New York. Of the $2.5 million that Gelfman and GBI were ordered to pay, roughly $1 million will go towards customer restitution, while the rest of the fines are civil monetary penalties. However, the CFTC said Gelfman’s victims may not receive restitution because he doesn’t have sufficient funds.

The Gelfman case 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, Finance Magnates reported.

In September 2017, the CFTC filed a suit with the U.S. District Court for the Northern District of Texas against two defendants for the allegedly fraudulent solicitation of BTC. According to CFTC’s release, the defendants were running two fraudulent businesses and misleading the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.