Reed Smith Client Alerts

On September 21, 2017, the U.S. Commodity Futures Trading Commission (“CFTC”) filed a complaint in federal court in the Southern District of New York against Gelfman Blueprint, Inc. and its CEO and head trader (the “Defendants”) for operating a bitcoin Ponzi scheme.1 With the significant uptick in initial coin offerings (“ICOs”) in recent months, regulators throughout the globe have turned their attention to digital assets, and the CFTC is no exception.2 This is the fourth enforcement action that the CFTC has brought involving digital currencies since it first declared its jurisdiction over these products in 2015. It marks the first time, however, that the CFTC has exercised anti-fraud authority over a scheme involving bitcoin spot transactions.3

Auteurs: Peter Y. Malyshev Kari S. Larsen Michael Selig

Type: Client Alerts

Background

The CFTC is asserting that the Defendants marketed interests in a pooled fund to investors by claiming that a computer program known as “Jigsaw” would trade bitcoin for the fund using a high-frequency, algorithmic trading strategy; but in fact, no such program existed.4 The Defendants created an account for Jigsaw at a digital currency exchange, but they controlled its trading, which was minimal. Notably, the Defendants used Internet chatrooms and social media websites, including Facebook and Instagram, to solicit customers by touting the success of their Jigsaw software. The CFTC claims they also developed a fake “interactive customer dashboard” with falsified balances, deposits and withdrawals.

According to the Complaint, the Defendants used falsified performance reports and promises of significant payouts to solicit more than $600,000 from customers for a pooled fund. Then the CFTC says the Defendants misappropriated nearly all of the customer funds. The CFTC claims the Defendants attempted to conceal the scheme by, among other things, staging a cyber-attack and asserting that it wiped the funds out.