Another day and another fine from the Commodity Futures Trading Commission (CFTC). The CFTC has been cracking down on crypto related financial products that are in fact scams. Together with the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), the CFTC has been looking into scams – mainly Ponzi schemes – created to dupe investors out of their money by claiming to be crypto related products. By using industry buzzwords, investors were scammed out of thousands of dollars.
This time, the CFTC has gone after Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman. The company and CEO have both been charged with floating a Ponzi scheme and have been fined $2.5 million for doing so. According to the company’s website, it has 85 customers and a total of 2,367 Bitcoin under management.
A Long and Protracted Battle
The CFTC has been hunting Gelfman and GBI for quite some time now. It first charged the company and CEO back in September 2017 for running the Ponzi scheme between 2014 and 2016, raking in millions of dollars from unsuspecting investors that were looking to strike it rich during the crypto gold rush. It’s safe to say the CFTC will be celebrating this victory come the end of the week.
Taking the Technical Approach
As far as Ponzi schemes go, not many are quite this technical. Gelfman and co. put a lot of effort into making the Ponzi scheme look legitimate, and during that time frame it would have been pretty hard to actually lose money – if the firm had been operating legitimately. GBI gave users a way to look at their alleged portfolio and see its performance, as well as track the firms AI trading system. Unfortunately, the system was making losing trades all day long and it lived in the red. As a means to get around this, GBI tweaked the system to show that it was always making winning trades and thriving in the green. In hindsight, Gelfman would have been better off actually buying BTC for customers and simply holding it, as it would have been green without the need for excessive trading.
Regulators Cracking Down
Regulators are finally saying that enough is enough and are clamping down hard on crypto scams. In September, the SEC filed a cease and desist order, as well as issued a $200,000 fine to Crypto Asset Management LP (CAM) and its founder Timothy Enneking for willfully violating securities law. Only a few days later, FINRA charged Timothy Tilton Ayre for crypto fraud after he was peddling a fake cryptocurrency to unsuspecting investors.
Investors will be paid a small sum of restitution, but it still won’t repay the potential earnings they would have made over the same period of time by actually buying Bitcoin like they were promised. Investors in this Ponzi scheme will likely be very angry over the pittance of restitution they will actually receive, but this highlights why it’s so important to buy Bitcoin and hold it yourself – not letting others do it for you. You never know who you can trust in this young industry, so it always pays to act with caution.