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.

Swiss Fine RBS Unit Coutts Over 1MDB Money-Laundering Breaches

  • Bank ordered to pay back 6.5 million francs in unlawful profit
  • Finma considering enforcement proceedings against employees

Switzerland’s financial regulator fined Coutts & Co. Ltd. for violating money-laundering rules and illegally profiting from transactions associated with Malaysian sovereign wealth fund 1Malaysia Development Bhd.

Coutts, owned by Royal Bank of Scotland Group Plc, allowed a total of $2.4 billion worth of 1MDB-related assets to flow through accounts in Switzerland even though it had good reason to be suspicious of the transactions., the Financial Market Supervisory Authority, or Finma, said.

Finma said it was also considering enforcement proceedings against those Coutts employees responsible for the bank’s actions. A young Malaysian businessman opened an account in the summer of 2009 with the expectation that $10 million would be transferred to it from the holder’s family assets. Instead, about $700 million was moved to the account late that year from 1MDB.

The wealth fund, which has consistently denied wrongdoing, is at the center of several international investigations into alleged corruption and money laundering by public officials. Prosecutors in Singapore, Switzerland and the U.S. and other jurisdictions are looking into a sweeping multiyear scheme in which more than $3.5 billion was allegedly diverted from the investment vehicle.

“We regret any historic failings in our AML processes,” RBS said in an e-mailed statement. “Coutts & Co. Ltd. has progressively and substantially strengthened its AML policies and controls. We are in the process of winding-down this Swiss-incorporated business, following the sale of the majority of the assets last year.”

RBS sold the Coutts International private-banking unit to Union Bancaire Privee last year. UBP declined to comment on the Finma announcement and said that since it was an asset-only deal, it didn’t inherit any legal liability.

Western Union admits to anti-money laundering, consumer fraud violations

WASHINGTON, Jan. 22, CMC – Western Union, one of the leading money transfer agencies across the Caribbean, has admitted to anti-money laundering and consumer fraud violations.

As a result, the United States Department of Justice (DOJ) said The Western Union Company (Western Union), headquartered in Englewood, Colorado, has agreed to forfeit US$586 million.
The DOJ said the money transfer agency has also agreed and enter into agreements with the Justice Department, the US Federal Trade Commission (FTC), and the US Attorney’s Offices for the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida.

“As this case shows, wiring money can be the fastest way to send it – directly into the pockets of criminals and scam artists,” said Acting Assistant Attorney General David Bitkower of the DOJ’s Criminal Division.

“Western Union is now paying the price for placing profits ahead of its own customers. Together with our colleagues, the Criminal Division will both hold to account those who facilitate fraud and abuse of vulnerable populations, and also work to recoup losses and compensate victims,” he added.

FTC Chairwoman Edith Ramirez said Western Union owes a responsibility to consumers to guard against fraud, “but instead the company looked the other way, and its system facilitated scammers and rip-offs.”

She said the agreements “will ensure Western Union changes the way it conducts its business and provides more than a half billion dollars for refunds to consumers who were harmed by the company’s unlawful behavior.”

In its agreement with the Justice Department, Western Union admits to criminal violations, including willfully failing to maintain an effective anti-money laundering (AML) program and aiding and abetting wire fraud, the DOJ said.

According to admissions contained in the deferred prosecution agreement (DPA) and the accompanying statement of facts, between 2004 and 2012, Western Union violated US laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.

As part of the scheme, the DOJ said fraudsters contacted victims in the US and falsely posed as family members in need or promised prizes or job opportunities.

The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize, the DOJ said.

It said various Western Union agents were “complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds.

“Western Union knew of but failed to take corrective action against Western Union agents involved in or facilitating fraud-related transactions.”.

Beginning in at least 2004, it said Western Union recorded customer complaints about fraudulntly induced payments in what are known as consumer fraud reports (CFRs).

In 2004, the DOJ said Western Union’s Corporate Security Department proposed global guidelines for discipline and suspension of Western Union agents that processed a “materially-elevated number of fraud transactions.”

In these guidelines, the DOJ said the Corporate Security Department “effectively recommended automatically suspending any agent that paid 15 CFRs within 120 days.

“Had Western Union implemented these proposed guidelines, it could have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012,” the DOJ said.

Court documents also show Western Union’s BSA failures spanned eight years and involved, among other things, the acquisition of a significant agent that Western Union knew prior to the acquisition had an ineffective AML program and had contracted with other agents that were facilitating significant levels of consumer fraud.

“Despite this knowledge, Western Union moved forward with the acquisition and did not remedy the AML failures or terminate the high-fraud agents,” the DOJ said.

Similarly, it said Western Union failed to terminate or discipline agents who repeatedly violated the BSA and Western Union policy through their structuring activity in the Central District of California and the Eastern District of Pennsylvania.

The BSA requires financial institutions, including money services businesses, such as Western Union, to file currency transaction reports (CTRs) for transactions in currency greater than $10,000 in a single day, the DOJ said.

To evade the filing of a CTR and identification requirements, the DOJ said criminals will often structure their currency transactions so that no single transaction exceeds the $10,000 threshold.

Financial institutions are required to report suspected structuring where the aggregate number of transactions by or on behalf of any person exceeds more than $10,000 during one business day, the DOJ said.

“Western Union knew that certain of its US Agents were allowing or aiding and abetting structuring by their customers,” the DOJ said. “Rather than taking corrective action to eliminate structuring at and by its agents, Western Union, among other things, allowed agents to continue sending transactions through Western Union’s system and paid agents bonuses.

“Despite repeated compliance review identifying suspicious or illegal behavior by its agents, Western Union almost never identified the suspicious activity those agents engaged in in its required reports to law enforcement,” it added.

The DOJ said Western Union has been on notice since at least December 1997, that individuals use its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks.

It said Western Union knew that gambling transactions presented a “heightened risk of money laundering” and that, through at least 2012, certain procedures it implemented were “not effective at limiting transactions with characteristics indicative of illegal gaming from the United States to other countries.”

The DOJ said Western Union entered into a DPA in connection with a two-count felony criminal information filed in the Middle District of Pennsylvania charging Western Union with willfully failing to maintain an effective AML program and aiding and abetting wire fraud.

Pursuant to the DPA, the DOJ said Western Union has agreed to forfeit US$586 million and also agreed to enhanced compliance obligations to prevent a repeat of the charged conduct.

These include creating policies and procedures for corrective action against agents who “pose an unacceptable risk of money laundering or have demonstrated systemic, willful or repeated lapses in compliance;” and that ensure that its agents around the world will adhere to US regulatory and AML standards.

Western Union’s enhanced compliance obligations also include ensuring that the company report suspicious or illegal activity by its agents or related consumer fraud reports, the DOJ said.

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