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Gelfman Blueprint fined $2.5 million for Bitcoin fraud


With the rise in interest in cryptocurrencies has also come the rise of hedge funds that purportedly invest in those very same cryptocurrencies. Many of the managers of these funds are riding the wave of interest in the emerging asset class; many cryptocurrency hedge funds are not managed by individuals with long track records trading forex, but come instead from the technology sector. Yet managing cryptocurrencies is like trading forex, but in a more volatile and unpredictable market than even emerging markets currencies!

Gelfman Blueprint hit for $2.5 million fine

Gelfman Blueprint, which as been fined $2.5 million by the US regulator for ostensibly running a cryptocurrency Ponzi scheme, is a case in point. Gelfman promoted itself to investors as a Bitcoin-denominated hedge fund that would be trading Bitcoin using an algorithm (called Jigsaw in this case). Like many similar investment schemes of this type, the managers were hiding behind the idea that it was a computer that would be making the trading decisions.

The Commodity Futures Trading Commission (CFTC) filed a suit against Gelfman Blueprint back in September last year along with founder Nicholas Gelfman, in the US District Court of the Southern District of New York. He stood accused of running a Ponzi scheme and of defrauding more than $600,000 from more than 80 people.

As with other schemes of this ilk, the strategy was a fake and the redemptions from the fund were being met by new investment. To conceal their trading losses and misappropriation, the owners of Gelfman Blueprint issued false trading statements which seemed to demonstrate positive gains trading Bitcoin. This was not compatible with the Jigsaw trading account, which showed the CFTC infrequent trading activity usually of a loss-making nature.

“This case marks yet another victory for the Commission in the virtual currency enforcement arena,” said James McDonald, the CFTC’s Director of Enforcement. “As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”

Regulators to be forced to license crypto exchanges

It remains only a matter of time before major regulators move against the way that cryptocurrency investments are marketed. On top of this, the ongoing use of Bitcoin and Bitcoin Cash as a means of money laundering has not escaped notice. While the financial services industry has been under increasing pressure to upgrade its anti-money laundering practices, this does not seem to fit with the existence of the massive, multi-billion dollar cryptocurrency market, which readily allows for large sums of money to travel cross border with little of no identification of beneficiaries.

It comes as no surprise to see the Financial Action Task Force in Paris declaring that it will be requiring member countries to license or regulate cryptocurrency exchanges, including providers of currency ‘wallets’. Countries which fail to comply will be added to the FATF black list, which will create all sorts of problems for them, as some offshore financial centres have found to their cost over the past 20 years.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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