District Court Judge Supports CFTC, Designates Two Altcoins As Commodities in Cryptocurrency 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 broader case involving a $120 million cryptocurrency Ponzi scheme involving Oregon-based Sam Ikkurty and other related companies.

Ikkurty’s Ponzi Scheme Overview

Interestingly, Ikkurty’s program promised investors a fixed annual return of 15% by investing in various crypto assets. Some of the crypto instruments involved were Bitcoin, Ether, the unpopular KlimaDAO (KLIMA), and Olympus (OHM).

The U.S. Commodity Futures Trading Commission (CFTC) took the case to court, arguing that the digital asset is subject to the same regulations as bitcoin and futures trading regulations.

KlimaDAO operates primarily as a decentralized autonomous organization (DAO) that aims to solve coordination problems in climate finance. KLIMA coin is the DAO’s governance token.

Despite reaching a record price of USD 3,777 on October 21, 2021, the value of KLIMA fell to just $3.55which represents a 99.9% drop from its highest point.

OlympusDAO, on the other hand, aims to create a decentralized reserve currency with its governance token, OHM. Both tokens were relatively unknown before they came into the spotlight in this court case.

In a statement issued on July 3, the CFTC revealed that Ikkurty deceived potential investors by claiming that he only invested in stable crypto assets. He also exaggerated his past successes to build trust and attract investments.

Contrary to his claims, Ikkurty was running a classic Ponzi scheme, consistently misrepresenting the performance of his fund. Within a few months, the same funds had already lost over 98.99% of their value.

Cryptocurrency pyramid scheme ruling

To cover up the fund’s poor performance, Ikkurty diverted a significant portion of the investment to early investors, a move that resulted in a $20 million loss for investors in a supposed carbon offset program.

In addition to running a Ponzi scheme, Ikkurty had previously fallen victim to a hacker attack that resulted in him losing all of his personal Bitcoin holdings.

Judge Mary Rowland, ruling in the fraud case, ordered Ikkurty to pay more than $83.7 million in damages and an additional $36.9 million in restitution.

Meanwhile, the CFTC initially charged Ikkurty and his associate, Ravishankar Avadhanam, in May 2022. The charges included allegations of fraud and failing 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 illustrates the ongoing regulatory scrutiny and legal challenges facing the cryptocurrency industry.

Federal Trade Commission (FTC) revealed Over 46,000 people reported losing over $1 billion to various cryptocurrency scams between January 2021 and June 2022.

This staggering amount only reflects cases in which victims voluntarily reported their losses to authorities.