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CFTC Files Its First Anti-Fraud Enforcement Action Involving Bitcoin

by   |   September 21, 2017

The CFTC filed a federal civil enforcement action in the U.S. District Court for the Southern District of New York against Defendants Nicholas Gelfman, of Brooklyn, New York, and Gelfman Blueprint, Inc. (GBI), a New York corporation. The CFTC is charging them with fraud, misappropriation, and issuing false account statements in connection with solicited investments in Bitcoin.

The CFTC complaint alleges that from approximately January 2014 through approximately January 2016, GBI and Gelfman, the Chief Executive Officer and Head Trader of GBI, operated a Bitcoin Ponzi scheme. They allegedly 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, using a computer trading program called “Jigsaw.” According to the CFTC the strategy was fake and the purported performance reports were false.  The CFTC claims payouts of supposed profits to GBI customers in actuality consisted of other customers’ misappropriated funds.

The CFTC complaint also alleges that the Defendants attempted to conceal trading losses and misappropriation by providing false performance reports to pool participants, including statements that created the appearance of positive Bitcoin trading gains. According to the CFTC, the Defendants’ Jigsaw trading account records reveal only infrequent and unprofitable trading.

According to the CFTC Gelfman attempted to conceal the scheme by staging a fake computer “hack” that supposedly caused the loss of nearly all GBI Customer funds. The CFTC complaint states “This was a lie.”

The above is based on the CFTC’s allegations in the Complaint. No judicial finding has been made that the Defendants violated the law.