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Monday, July 8, 2024
Fraud - Bitcoin - Fined $83 million
Federal Court Enters Summary Judgment Against Oregon Man and Orders $83 Million in Restitution for Fraud Victims
July 03, 2024
Washington, D.C. — The Commodity Futures Trading Commission today announced Judge Mary Rowland of the U.S. District Court for the Northern District of Illinois entered an order granting summary judgment to the CFTC on all counts of its complaint. Judge Rowland also ordered more than $83.7 million in restitution and $36.9 million in disgorgement jointly and severally against Sam Ikkurty of Oregon and Jafia, LLC, Ikkurty Capital, LLC d/b/a Rose City Income Fund I, Rose City Income Fund II, and Seneca Ventures, LLC (defendants). In addition, the summary judgment order also found the defendants misappropriated funds through a carbon offset program.
The order finds Ikkurty and the defendants committed all alleged violations of the Commodity Exchange Act (CEA) and CFTC regulations, including fraud and failure to register. Judge Rowland also found the defendants operated as “a classic Ponzi scheme,” including in connection with the defendants’ carbon offset program. The CFTC will seek injunctive relief and a civil monetary penalty.
Case Background
The summary judgment order finds Ikkurty recruited participants to his funds through webinars and trade shows by promising participants they would earn a steady distribution of 15% income per year of supposed “net profits” through investments in digital asset commodities such as Bitcoin and Ethereum, and commodity interests. Ikkurty touted the purported success of his prior fund to lure new participants to invest. Ikkurty assured prospective participants he invested in “stable” digital assets. Ikkurty also gained participants’ confidence by repeatedly telling stories of his personal success investing in and trading digital assets. Few of Ikkurty’s statements were true. In reality, per the summary judgment order, Ikkurty did not return any net profits to participants, and instead “ran something akin to a Ponzi scheme.” Citing the CFTC investigator’s testimony, Judge Rowland found Ikkurty’s marketing materials misstated his fund’s historical performance and omitted the fact that the fund fell in value by 98.99% over a period of a few months. Also, the order finds Ikkurty invested in unstable digital asset commodities, some related to carbon offsets, and his actual experience with digital assets consisted of losing his personal Bitcoins to a hack.
Notably, in addition to the misrepresentations, the summary judgment order also finds the defendants misappropriated funds through a carbon offset program. The defendants raised funds by selling products that were purportedly backed by digital assets related to carbon offsets. But instead of actually obtaining the promised collateral, the defendants transferred much of the funds to earlier investors in their other fund to allow them to avoid losses. According to the order, this resulted in a shortfall of more than $20 million for the carbon offset program participants. The order describes this series of events as “a classic Ponzi move.”
In addition to committing fraud, the order also finds the defendants failed to register with the CFTC as commodity pool operators.
Additionally, the order finds not only are Bitcoin and Ethereum commodities within the CFTC’s jurisdiction, but also “OHM and Klima, two non-Bitcoin virtual currencies ... qualify as commodities,” noting those virtual currencies fall into the same general class as Bitcoin, on which there is regulated futures trading.
The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets
The Division of Enforcement staff responsible for this matter are Candy Haan, Heather Dasso, Doug Snodgrass, Joseph Patrick, Elizabeth Streit, Scott Williamson, and Robert Howell, and former staff member David Terrell.
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Fraud Advisory
The CFTC has issued several customer protection fraud advisories and articles, including the Commodity Pool Fraud Advisory, which provides information about a type of fraud involving individuals and firms—often unregistered—offering investments in commodity pools and how customers can detect, avoid, and report these scams.
The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.
Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected, paid from the Customer Protection Fund which is financed through monetary sanctions paid to the CFTC by violators of the CEA.
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