The U.S. Commodity Futures Trading Commission (CFTC) has filed a lawsuit against a New York-based company that it says was running an elaborate Ponzi scheme using the popular cryptocurrency Bitcoin as its primary asset. Reports indicate that Gelfman Bluepring, INC had fraudulently solicited over $600,000 from roughly 80 unsuspecting investors who were bilked into believing that they would receive huge payouts from an advanced trading “strategy,” only to find out later that the strategy was non-existent.
Nicholas Gelfman of Brooklyn, head of the company, is said to have told his investor victims that he employed a “high-frequency, algorithmic trading strategy” that would earn for them big returns. He then took their money and ran with it, prompting the CFTC, an independent agency that monitors the U.S. derivatives market, to intervene. The CFTC determined that Gelfman’s entire operation was “fake,” and that he had no real plan in place to earn honest returns for his investors.
“The purported performance reports were false, and – as in all Ponzi schemes – payouts of supposed profits … actually consisted of other customers’ misappropriated funds, the CFTC said in a statement.
As to how Gelfman concealed the scam, the CFTC found that he had staged a computer hack that created the illusion that trading was occurring and that the algorithm was working. But the whole things was falsified, resulting in every single one of the investors losing “most if not all of their invested funds.”
“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,” stated James McDonald, the CFTC’s director of enforcement, in a statement quoted by CNN.
The lawsuit represents the first major indictment of its kind filed by the federal government against a Bitcoin-related operation since the Feds first started investigating the world of “Silk Road” several years back. While there have been other lawsuits related to Bitcoin that have come through the court system over the years, this one is unique as now Washington, D.C., is directly involved.
Meanwhile, the Chinese government has launched a crusade against cryptocurrency exchanges as part of a nationwide crackdown on domestic trading platforms. Statements made by the communist regime indicate that the government there could be on the verge of completely stamping out domestic cryptocurrency activity entirely, including a potential formal ban on domestic Bitcoin exchanges.
These actions by the governments of both the United States and China have resulted in wild fluctuations in the price of Bitcoin over the past several months. In mid-September, the price of Bitcoin relative to the U.S. dollar plummeted some 25 percent, which caught many a Bitcoin trader off guard who believed the cryptocurrency to be impervious to such volatility.
There is also growing concern about the blossoming initial coin offering (ICO) craze, a popular crowdsourcing-based fundraising technique that utilizes cryptocurrency as a medium of exchange. There have been a number of ICO scams in recent days that have called into question whether or not the anonymity and privacy that comes along with owning and trading cryptocurrency is really worth it in light of all the potential risks,.
“A combination of concerns about investor security, money laundering, funding of terrorist activities and more has prompted the Chinese government to issue a widespread ban on domestic bitcoin exchanges,”reports Investopedia. “This marks the first time that a national government has stepped in with such a strong degree of authoritarial force, although perhaps in light of recent news other governments may consider a similar tactic in the weeks and months ahead.”
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