In the world of crypto, a federal judge in Chicago has ordered Sam Ikkurty, a resident of Oregon, and companies associated with him to pay more than $120 million to victims defrauded in what the Commodity Futures Trading Commission (CFTC) called a “classic Ponzi scheme.” The July 2 decision by Judge Mary Rowland marks an important victory for the CFTC and sets a precedent for regulating little-known digital assets.
Webinars, Promises, and Empty Accounts
Ikkurty, through his companies such as Rose City Income Fund and Seneca Ventures, allegedly lured investors with promises of 15% annual returns on investments in “stable” digital assets such as Bitcoin and Ethereum. According to the CFTC, Ikkurty used webinars and trade shows to spread these claims, citing the alleged success of his previous investments to attract new investors.
However, the court order paints a different picture. Judge Rowland found that Ikkurty’s marketing materials were misleading, overstated past performance and failed to disclose a nearly 99% decline in the value of its stock over a short period of time. The CFTC investigation also revealed that Ikkurty did not make “stable” investments in digital assets as promised, but instead gambled on risky ventures, and even lost his Bitcoins in a hack.
A Common Case of Deceiving People
Perhaps the most disturbing discovery concerns Ikkurty’s alleged operation of a Ponzi scheme. The court order explains how, instead of making returns on investments, Ikkurty used funds from new investors to pay back promised returns to previous participants. This practice, known as a Ponzi scheme, is inherently unsustainable and leads to the collapse of the scheme when new investors dry up.
The directive also details the misuse of funds through the carbon offset scheme. Investors were told that their funds would be used to buy digital assets related to carbon offsets. However, the CFTC found that Ikkurty diverted a large portion of these funds from former investors in his other funds, creating a $20 million shortfall for participants in the carbon offset program. Judge Rowland bluntly called the scheme a classic Ponzi scheme.
Crypto Takes a Hit, CFTC Wins
The court’s decision has a major impact on the cryptocurrency market. First, it highlights the potential for fraud in the growing digital asset landscape. Investors should be wary of unreasonable returns and thoroughly research any investment opportunity before committing.
Second, the lawsuit establishes the CFTC’s authority over certain cryptocurrencies. Judge Rowland’s ruling includes not only Bitcoin and Ethereum as assets under the CFTC’s jurisdiction, but also two lesser-known coins, OHM and Klima. This expands the CFTC’s regulatory reach within the cryptocurrency market and empowers them to pursue similar fraudulent activities involving these digital assets.
Featured image from Unsplash, chart from TradingView
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