According to Cointelegraph: An Illinois district court judge has ruled in favour of the United States Commodity Futures Trading Commission (CFTC) in a significant crypto fraud case, declaring two obscure altcoins, OHM and KLIMA, as commodities. This decision marks a pivotal moment in the regulation of digital assets.
Details of the Ponzi Scheme
The case revolves around Sam Ikkurty from Oregon, who orchestrated a Ponzi scheme that defrauded investors by promising annual returns of 15% from investments in “digital asset commodities.” These included not only Bitcoin and Ether but also lesser-known altcoins like Olympus (OHM) and KlimaDAO (KLIMA).
The CFTC asserted that these virtual currencies fall into the same category as Bitcoin, which is subject to regulated futures trading. Consequently, the court recognized OHM and KLIMA as commodities.
Impact on OHM and KLIMA
KLIMA, the governance token of KlimaDAO, has experienced a dramatic price drop, trading at $3.55, a 99.9% decrease from its all-time high of $3,777 in October 2021, according to CoinGecko. KlimaDAO positions itself as a solution to coordination problems in climate finance.
Similarly, OHM, the governance token of OlympusDAO, aims to establish a community-owned decentralized reserve currency.
Court Orders and Financial Penalties
On July 3, the CFTC issued a statement detailing the extent of Ikkurty’s fraud. He falsely assured investors of stable crypto asset investments and fabricated his previous successes to gain their confidence. However, instead of delivering returns, Ikkurty operated the scheme like a traditional Ponzi scheme, using new investments to pay earlier investors and misrepresenting the fund's performance. The value of his fund plummeted by over 98.99% within months.
Moreover, Ikkurty transferred substantial funds to early investors to mask the losses, resulting in a $20 million shortfall for those invested in the purported carbon offset program. Notably, Ikkurty had also previously lost his entire Bitcoin holdings to a hack.
Judge Mary Rowland ordered Ikkurty to pay over $83.7 million in restitution and $36.9 million in disgorgement, totalling more than $120 million. The CFTC had initially accused Ikkurty and Ravishankar Avadhanam of fraud and failing to register with the agency in May 2022. They solicited over $44 million from at least 170 individuals through a website, YouTube videos, and other means to trade cryptocurrencies, derivatives, and commodity futures contracts.
This ruling underscores the increasing regulatory scrutiny of digital assets and the classification of altcoins as commodities. It serves as a reminder to investors to exercise caution and due diligence in the rapidly evolving cryptocurrency market.