Tech
District Court Judge Sides With CFTC, Labeling Two Altcoins As Commodities in Crypto Fraud Case
An Illinois District Court judge has ruled that two relatively little-known altcoins, OHM and KLIMA, should be classified as commodities.
The ruling was part of a larger case involving a $120 million cryptocurrency Ponzi scheme orchestrated by Oregon’s Sam Ikkurty and other affiliated companies.
Detailing Ikkurty’s Ponzi Scheme
Specifically, Ikkurty’s plan promised investors a steady 15% annual return through investments in various cryptocurrency commodities. Some of the cryptocurrencies involved include Bitcoin, Ether, the unpopular KlimaDAO (KLIMA), and Olympus (OHM).
The U.S. Commodity Futures Trading Commission (CFTC) took the case to court, arguing that digital assets fall under the same regulation as Bitcoin and are subject to futures trading regulations.
KlimaDAO works primarily as a decentralized autonomous organization (DAO) which aims to address coordination issues in climate finance. KLIMA coin is the governance token of the DAO.
Despite hitting an all-time high of $3,777 on October 21, 2021, KLIMA’s value has plummeted to just $3.55marking a 99.9% drop from its peak.
On the other hand, OlympusDAO is striving to create a decentralized reserve currency with its governance token, OHM. Both tokens were relatively unknown before they came under the spotlight in this court case.
In a statement released on July 3, the CFTC revealed that Ikkurty deceived potential investors by claiming to only invest in stable crypto assets. He also exaggerated his past successes to build trust and attract investment.
Contrary to his claims, Ikkurty was running a classic Ponzi scheme, continually misrepresenting the performance of his fund. Within a few months, the funds themselves had already lost more than 98.99% of their value.
Crypto Ponzi Scheme Ruling
To hide the fund’s poor performance, Ikkurty redirected substantial portions of the investments to early investors. This move resulted in a $20 million loss for investors in the supposed carbon offset program.
In addition to running a Ponzi scheme, Ikkurty had previously been the victim of a cyber attack that stripped him of all of his personal Bitcoin.
Judge Mary Rowland, who ruled on the fraud case, ordered Ikkurty to pay more than $83.7 million in restitution and another $36.9 million in restitution.
Meanwhile, the CFTC had initially loaded Ikkurty and his partner, Ravishankar Avadhanam, in May 2022. The charges included allegations of fraud and failure to register with the CFTC.
According to the CFTC, Ikkurty and Avadhanam raised more than $44 million from at least 170 investors using YouTube videos, a website and other promotional methods.
The duo told investors they would use the funds to trade derivatives, digital assets and commodity futures. This case highlights the ongoing regulatory scrutiny and legal challenges of the cryptocurrency industry.
The Federal Trade Commission (FTC) revealed that over 46,000 people have reported losing over $1 billion to various cryptocurrency scams between January 2021 and June 2022.
This staggering figure reflects only those cases where victims voluntarily came forward to the authorities to report their losses.
Disclaimer: The views expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile and high-risk asset class.
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