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A U.S. federal court has fined a New York firm and its chief executive officer over $ 2.5 million in the first anti-fraud action involving bitcoin filed by the Commodity Futures Trading Commission. The Ponzi scheme involved a fake pooled investment strategy and a “fake computer ‘hack’ that supposedly caused the loss of nearly all customer funds,” the derivatives regulator detailed.
CFTC’s First Bitcoin Anti-Fraud Action
The U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that a New York federal court has ordered two defendants “to pay in total over $ 2.5 million in civil monetary penalties and restitution” in a bitcoin fraud case.
The orders against New York corporation Gelfman Blueprint Inc. (Gbi) and its CEO Nicholas Gelfman were entered by Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York. According to the commission, this case was “the first anti-fraud enforcement action involving bitcoin” filed by the CFTC.
The derivatives watchdog explained that “Gelfman was liable as a controlling person for Gbi’s violations” while “Gbi was liable as a principal for the violations of Gelfman and its other officers, agents, and employees.”
Noting that the complaint was originally filed against the defendants on Sept. 21, the CFTC wrote in Thursday’s announcement:
In addition to requiring Gbi and Gelfman, respectively, to pay $ 554,734.48 and $ 492,064.53 in restitution to customers and $ 1,854,000 and $ 177,501 in civil monetary penalties, the orders impose permanent trading and registration bans on Gbi and Gelfman.
The orders also “permanently enjoin them from further violations” of the CFTC Act and regulations. While the defendants are required to repay victims, the agency emphasized that the orders “may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets.”
More Than 80 Customers Defrauded
From approximately 2014 to January 2016, “Gelfman and Gbi, by and through its officers and agents and employees, operated a bitcoin Ponzi scheme,” the CFTC wrote. “They fraudulently solicited more than $ 600,000 from at least 80 customers.”
The scheme promised to place customers’ funds “in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy executed by defendants’ computer trading program called ‘Jigsaw.’” The CFTC noted that the defendants posted on social media statements such as “We are a software development firm, currently offering customers access to a high-frequency BTC trading program called ‘Jigsaw’ (2% weekly BTC return).”
However, the commission asserted:
The strategy was fake, the purported performance reports were false, and — as in all Ponzi schemes — payouts of supposed profits to Gbi Customers in actuality consisted of other customers’ misappropriated funds.
Furthermore, in order to conceal “trading losses and misappropriation,” the defendants “made and provided false performance reports to pool participants.” Among the fake reports were statements showing positive bitcoin trading gains “when in truth defendants’ Jigsaw trading account records reveal only infrequent and unprofitable trading,” the CFTC described. The orders additionally detail:
Gelfman, in order to conceal the scheme’s trading losses and misappropriation, staged a fake computer ‘hack’ that supposedly caused the loss of nearly all customer funds.
What do you think of this CFTC’s enforcement action against Gbi and its CEO? Let us know in the comments section below.
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Justin Timberlake’s reaching Crazy Gideon status … slashing prices like a madman for a penthouse he’s desperately trying to unload. Justin just slashed the price to his SoHo crib by another $ 400k … and it’s now down to $ 6.35 mil. Great deal and,…
Ferrari fever burns on.
Four months after a 1962 Ferrari 250 GTO sold for $ 48 million at an RM Sotheby’s auction in Monterey — the highest price ever paid for a car at auction — a race car from the Ferrari history books may set a new Southern California high-water mark.
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A new cryptocurrency mining facility opened in Armenia on Oct. 18. The $ 50 million farm will extract bitcoin and ethereum using 3,000 machines, according to local media reports. Around 120,000 more miners are to be added in the months to come.
Multi Group and Omnia Establish Landmark Armenian Mining Facility
The mining project, spearheaded by Armenian real estate investment company Multi Group Concern and Malta-registered Omnia Tech International Company, was officially launched in the Armenian capital of Yerevan on Thursday. The country’s Prime Minister Nikol Pashinyan, businessmen and entrepreneurs from China, South Korea and the United Arab Emirates attended the ceremony, Arka News Agency reported.
Gagik Tsarukyan, an Armenian businessman and politician who is also founder and head of Multi Group, said the company spent $ 50 million creating the facility, including the installation of industrial level cooling systems. The farm’s first floor is designed for an information technology business center that runs around the clock, he explained.
According to an earlier statement by Multi Group chief executive Sedrak Arustamyan, the farm will be operated by Omnia Tech, a mining entity that offers lifetime contracts and daily payouts. Omnia Tech has said to be in partnership with Genesis Mining, a leading cryptocurrency hashpower supplier.
“We will also help Omnia Tech with the establishment of the Financial Technology Park and the data exchange center in Armenia,” Arustamyan said in April. Robert Velghe, Omnia Tech founder, indicated at the time that the two companies were planning to invest more than $ 2 billion in mining projects in Armenia. “We intend to create here a blockchain-based center for the development of new information projects, which will turn Armenia into a high-tech platform,” he said.
Global Cryptocurrency Mining Operations Rise
Armenia is aiming to create its own Silicon Valley by establishing a free economic zone that will host a state-of-the-art technology center, officials have said. The new mining facility, the country’s first, comes at a time when a number of countries are implementing and expanding blockchain technologies. Georgia, Armenia’s neighbor, set up its first bitcoin mining farm two years ago.
In August, Russian company Kriptoyunivers announced it had transformed a former fertilizer laboratory into a cryptocurrency mining operation. The center, which supports the mining of bitcoin and litecoin, was built over 4,000 square meters of land in the town of Kirshi near St. Petersburg, with an investment of 500 million rubles ($ 7.4 million). Although Moscow has cracked the whip on illegal attempts at cryptocurrency mining, Russia is still the third largest cryptocurrency producer in the world after China and the United States.
What do you think about the new mining facility in Armenia? Let us know in the comments section below.
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