CFTC, Bitcoin scammer clash over invoking Fifth Amendment privileges

The United States Commodity Futures Trading Commission (CFTC) is seeking more clarity on whether a defendant in a virtual currency scam case waived his Fifth Amendment privilege against self-incrimination. The case, captioned Commodity Futures Trading Commission v. Gelfman et al (1:17-cv-07181), targets Nicholas Gelfman, of Brooklyn, New York, and Gelfman Blueprint, Inc. (GBI), a New York corporation.

The Complaint in this matter was filed on September 21, 2017, alleging a Ponzi scheme involving the virtual currency Bitcoin and at least 80 customers, defrauded of at least $600,000.

On October 12, 2017, Gelfman, proceeding “pro se”, submitted a Verified Answer to the Complaint. Back then, he did not invoke his Fifth Amendment privilege and executed the Verified Answer “under penalty of perjury.”

On March 7, during a meet-and-confer call concerning Gelfmn’s noticed deposition, he suddenly indicated that he expected to invoke his Fifth Amendment privilege against compelled self-incrimination at the deposition and would decline to answer some but not all questions that may be asked at his deposition. On March 14, during a further meet-and-confer call, Gelfman indicated he would not answer certain questions concerning the subject matter of his Verified Answer on the basis of that privilege.

The CFTC argues that Gelfman waived his privilege against self-incrimination with regard to matters relevant to his Verified Answer when he filed his Verified Answer under penalty of perjury. The regulator notes that an individual may not use the Fifth Amendment as both a shield and a sword, answering some questions related to a particular topic in a given proceeding and avoiding others, as dictated by whim or self-interest. That is why, the CFTC is asking for more clarity on the matter.

Let’s note that in his Verified Answer, the defendant denied the bulk of CFTC’s allegations against him, including that he had run a Bitcoin Ponzi scheme and that he fraudulently solicited more than $600,000 from investors.

In his Verified Answer, Gelfman also denied that Bitcoin and other virtual currencies are commodities. This negation can be seen often in virtual currency scam cases, as this is an effort to question the CFTC jurisdiction over the segment. Whereas the defendants in such cases usually argue that virtual currencies are not commodities, the CFTC argues that they are, so that it can establish its rule over the segment and, hence, that it is the regulator that has the right to take enforcement action against virtual currency scams.

Earlier this month, Judge Jack B. Weinstein of the New York Eastern District Court agreed with the the CFTC and Chicago Mercantile Exchange Inc that virtual currencies are commodities under the Commodity Exchange Act (CEA). The ruling was a part of proceedings against Patrick K. McDonnell and CabbageTech, Corp. doing business as Coin Drop Markets (CDM). The defendants are charged with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.

The CFTC has made it clear that it intends to use this ruling to support its action against other fraudulent cryptocurrency schemes, such as the case against My Big Coin Pay.

The Fifth Amendment of the U.S. Constitution provides that:

“No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”