Bitcoin Hedge Fund and CEO Slapped With $2.5 Million Penalty for Ponzi Scheme

A New York federal court has ordered cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman to pay over $2.5 million for operating a fraudulent Ponzi scheme, according to an official announcement published Oct. 18.

GBI is a New York-based corporation and denominated Bitcoin (BTC) hedge fund incorporated in 2014. As stated on the company’s website, by 2015 it had 85 customers and 2,367 BTC under management.

The order is the continuation of the initial anti-fraud enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC) against GBI in September 2017. The CFTC charged GBI for allegedly running a Ponzi scheme from 2014 to 2016, telling investors that it had developed a computer algorithm called “Jigsaw” which allowed for substantial returns through a commodity fund. In reality, the entire scheme was a fraud.

Per the announcement, GBI and Gelfman fraudulently solicited over $600,000 from at least 80 customers. Moreover, Gelfman set up a fake computer “hack” to conceal the scheme’s trading losses. It eventually resulted in the loss of almost all customer funds.

The current order charges GBI and Gelfman to pay over $2.5 million in civil monetary penalties and restitution. GBI and Gelfman are ordered to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, respectively.

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

Last month, the CFTC filed a suit with the U.S. District Court for the Northern District of Texas against two defendants for the allegedly fraudulent solicitation of BTC. Per the suit, defendants Morgan Hunt and Kim Hecroft were running two fraudulent businesses and misleading the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.

Newark man sentenced to one year and a day in prison for money laundering

A 68-year-old Newark man was sentenced to one year and a day in prison for his part in a wire fraud scheme that transferred $6.1 million from the Newark financial services company his wife worked at to her bank account.

Matthew Czap was sentenced Wednesday by Chief U. S. District Court Judge Leonard P. Stark. Czap’s wife, Roberta, 66, pleaded guilty last month and is scheduled to be sentenced in September.

“Mr. Czap’s conduct helped to conceal the proceeds of fraud and allowed the crime to go undetected for years,” Acting U.S. Attorney for the District of Delaware David C. Weiss said in a statement. “While he didn’t personally steal the money, he enjoyed the benefits of it. Individuals contemplating similar conduct should understand that their crimes will have the most serious of consequences.”

From Jan. 11, 2011, to Aug. 30, 2016, Roberta Czap directed more than $6.1 million dollars in electronic funds transfers from her company’s operating account to her personal bank accounts, according to court documents.

Using the personal identification information of another employee, she created false payment requests, designed to appear legitimate, to the company’s vendors. She then authorized nearly 500 payments with company funds, using her own credentials. While Roberta Czap filed federal tax returns for 2013, 2014, and 2015, those returns did not, as was required by law, include her illegal income from the company’s funds, and materially understated her income.

According to federal prosecutors, Matthew Czap took some of that money and deposited it in amounts of less than $10,000.

Dating back to January 2013, he structured approximately $1.2 million of cash deposits, while aware that the currency represented the proceeds of his wife’s criminal conduct.

Some of the money was used for gambling, according to court documents.

For example, between Jan. 1, 2013, and July 14, 2016, the Czaps played more than $2.9 million on table games and slot machine play at one casino and suffered a combined loss of more than $1.4 million.

The two were indicted early this year.

Matthew Czap pleaded guilty on March 22 to one count of structuring financial transactions to avoid currency reporting requirements.


Three Orlando area lawyers suspended, including former Cay Clubs attorney

Three Orlando area lawyers have been suspended in the most recent action by the Florida Bar, including one that provided legal advice to the Cay Clubs Ponzi scheme in the Florida Keys.

The following details were provided by the Florida Bar and court records:

William Scott Callahan, Winter Park, was suspended for one year, retroactive to April 20. Callahan was subpoenaed and agreed to cooperate in a federal fraud investigation involving the Cay Clubs vacation rental scheme. He had been a partner at a law firm that handled closings for the company. In the course of his duties supervising the closing agents, Callahan violated Bar rules.

According to court records, Callahan made misleading statements, and when he learned the principals of the company were omitting pertinent information from the closing documents, he failed to warn them, failed to obtain additional legal opinions and failed to withdraw from further representation. Callahan received immunity from prosecution in return for providing information. (Florida Supreme Court Case No. SC17-539)

Michael Kevin Rathel, Orlando, suspended for one year. According to the Florida Bar and court records, Rathel bought a house after persuading the seller to hold a second mortgage for $100,000 needed by Rathel to pay the purchase price. Rathel promised to repay the seller and pledged his current home as security for the mortgage. Rathel sold his current home without telling the seller or repaying the seller’s second mortgage. Commencing in or about 2010, Rathel failed to file and pay his personal federal and corporate tax returns in a timely manner. In another matter, Rathel failed to timely respond to an inquiry about a Bar complaint. Suspension is effective 30 days from a March 23 court order. (FSC Case No. SC16-1024)

Photo: Florida Bar


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