If you think Ponzi schemes are a thing of the past, you’d unfortunately be wrong. Just recently, the Commodity Futures Trading Commission (CFTC) took an action against fraudulent activities involving bitcoin. The commission fined Nicholas Gelfman of Brooklyn, New York and Gelfman Blueprint Inc. (GBI) over $2.5 million for operating a bitcoin-related pyramid scheme.
CFTC accused the company of engaging in fraudulent practices, such as presenting fake performance reports to investors, concealing losses, staging a hack on the company’s computer system and soliciting at least $600,000 from at least 80 clients. Also, he paid some investors using other investor’s money – a hallmark of a pyramid scheme.
CFTC said the funds were solicited from unsuspecting investors under the pretense of sponsoring a high-frequency, algorithmic trading strategy, executed by a computer program called Jigsaw. According to legal documents, investors could enjoy up to 9% monthly increase in BTC. The program, however, was found to be unprofitable in reality and Gelfman was issuing false information to deceive customers.
It’s another stark reminder of the tireless schemers out there preying on people’s innate desires to “get rich quick.”
While legal proceedings started in 2017, fines and penalties were finalized three days ago. Penalties include Gelfman’s firm being ordered to pay at least $550,000 back to investors. Gelfman himself was ordered to pay about $492,000 to his clients. He will also pay another $1.8 million in penalties.
A Ponzi or pyramid scam is fraudulent scheme in which where someone promises investors unrealistic returns on non-existent investments. Early investors are paid from money acquired from newer investors until the scheme falls apart.
Since transactions on Bitcoin blockchain network are anonymous and decentralized, the crypto-coin offers a great option for nefarious profiteers looking to execute business outside of the watchful eye of law enforcement agencies.