The CFTC filed its complaint on Thursday in the U.S. District Court for the Southern District of New York, naming the CEO and Head Trader of the Bitcoin denominated hedge fund which claims to be built on a high-frequency trading algorithm.
Starting in January 2014, the defendants took the monies form investors to be supposedly placed in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy, executed by defendants’ computer trading program called “Jigsaw.
To create the illusion of stability, the defendants allegedly prepared and distributed false account statements to fund participants, telling investors that they made steady gains from trading the cryptocurrency, according to the complaint.
Based on the inflated profits, the defendants paid themselves several thousands of dollars in in fees, while in fact their trading account records reveal only infrequent and unprofitable trades. In addition, Gelfman is suspected of embezzling the remaining pooled monies after he “staged a fake computer hack designed to conceal trading losses and misappropriation,” the agency claims.
If convicted, Nicholas could serve up to 20 years in prison.
The CFTC has asked the court to provide full restitution to defrauded pool participants, disgorgement of ill-gotten gains and to pay the appropriate civil monetary penalties. In addition to fiscal claims, the agency seeks permanent registration and trading bans and a permanent injunction from future violations of federal commodities laws.
James McDonald, the CFTC’s Director of Enforcement, commented: “Through its work across the Commission, and as exemplified by the work of LabCFTC, the CFTC has demonstrated its continued commitment to facilitating market-enhancing FinTech innovation. Part of that commitment includes acting aggressively and assertively to root out fraud and bad actors in these areas. As alleged, the Defendants here preyed on customers interested in virtual currency, promising them the opportunity to invest in Bitcoin when in reality they only bought into the Defendants’ Ponzi scheme. We will continue to work hard to identify and remove bad actors from these markets.”