US crypto Ponzi scheme ordered to pay US$83 million in restitution

The investment scam included Klima tokens in a “carbon offset bond”.

Ikkurty Capital was a cypto currency hedge fund that claimed it would “provide exceptional returns through an actively managed diversified portfolio of blockchain assets”.

The company was set up by Sam Ikkurty. He recruited investors through webinars and trade shows, promising returns of 15% per year. Ikkurty told stories of his personal success investing in and trading digital assets.

In July 2024, Judge Mary Rowland of the US District Court of the Northern District of Illinois entered an order that found that Ikkurty and his various companies had committed violations of the Commodity Exchange Act and Commodity Future Trading Commission regulations, including fraud and failure to register.

Judge Rowland ordered Ikkurty and his companies to pay more than US$83.7 million in restitution and US$36.9 million in disgorgement.

The judgement order also found that Ikkurty misappropriated funds through a carbon offset programme. The order also found that Klima, a crypto token based on carbon offsets, qualifies as a commodity, and therefore falls under the CFTC’s jurisdiction.

On Twitter, Ikkurty states that, “I intend to fight the case CFTC vs Ikkurty all the way to US Supreme Court.” He is appealing for donations via his website.

“Ikkurty obfuscated and inflated past performance”

On 1 May 2006, Sam Ikkurty founded a company called Jafia LLC in the tax haven of Florida. Ikkurty is the company’s sole officer, president, and registered agent.

In 2013, Ikkurty incorporated Ikkurty Capital LLC, also in Florida. The company was reinstated in September 2017 after which it started doing business as Rose City Income Fund I (RCIF I). In 2021, RCIF II was set up.

Ikkurty did not registry himself or any of his companies with the CFTC.

Ikkurty’s experience in cryptocurrency investment consisted of buying between 25 and 50 Bitcoins. In 2017, his account was hacked. Yet in his sales pitch for RCIF II, Ikkurty said that trading Bitcoin allowed him to retire in 2017.

Ikkurty told participants in his webinars that the goal of RCIF II was to “earn income with exposure to crypto assets”. Ikkurty’s presentations advertised the success of RCIF I as a reason to invest in RCIF II.

According to the Court document, Ikkurty subsequently admitted that he overstated many of the monthly figures for RCIF I. In his testimony, Ikkurty stated that he had “no idea” how or why he did this.

Judge Rowland states that,

In his desire to recruit customers, Ikkurty obfuscated and inflated past performance. There can be no genuine dispute that Ikkurty did so willingly.”

The Court found that Ikkurty “acted at least recklessly in advertising false historical returns”.

The investment: OHM, Ethereum, WBTC, and Klima

Ikkurty had told investors that he would invest 65% of the fund in “stable proof-of-stake tokens”.

Instead, he put almost 90% of the RCIF money into a cryptocurrency called OHM. “Stable” is not a good description of OHM. Here’s how CoinDesk described it in December 2021:

If you haven’t heard about it, Olympus DAO is a decentralized finance (DeFi) protocol whose primary use case seems to be “making people extremely angry.” Skeptics argue that its core functionality — a staking scheme with an annual percentage yield (APY) of 7,000% via new OHM token mints — is unsustainable to the point of being fraudulent.

The price of OHM crashed from a high of US$1,320 in October 2021, down to US$28 in mid-March 2022. The current price is US$12.32.

Ikkurty also bought Ethereum and WBTC (Wrapped BitCoin), which is a token backed by BitCoin.

In marketing RCIF II, Ikkurty told potential investors they would receive “net profits”. In fact the companies just “redistributed participants’ funds” in “something akin to a Ponzi scheme”, the Court found.

Meanwhile Jafia developed a crypto savings note and a carbon offset bond. Both functioned as promissory notes — Jafia would make monthly interest payments and repay the principal at the end of the term. Ikkurty advertised interest payments of 18% per year.

The carbon offset bonds were advertised as collateralised securities. But Ikkurty offered the same digital wallet address as collateral for dozens of carbon offset bond buyers.

Ikkurty invested most of the crypto savings note funds in OHM and Klima. Klima is a crypto token based on retired carbon offsets that have been “bridged” onto the blockchain by a company called Toucan.

Klima was not a good investment (unless you sold a few days after the launch). From an opening price of US$1,977 In October 2021, the price shot up to US$3,683 within a week, before collapsing. The current price is US$3.33.

The collapse and the payouts: “A classic Ponzi move”

From November 2021 to March 2022, RCIF I lost 98.99% of its aggregate returns.

In December 2021, Ikkurty offered RCIF I investors buyouts or carbon offset bonds. Jafia paid out more than US$29 million in cash and carbon offset bonds for stakes that were worth about US$7.7 million.

The Court document states that,

The CFTC alleges that Ikkurty provided buyouts to participants based on the value of their positions in October and November, not December 2021 when the buyouts took place. The CFTC also alleges that Ikkurty used COB [carbon offset bonds] interest payment funds to pay for the buyouts.

On 13 January 2022, Ikkurty wrote to an investor in RCIF I. He explained that, “December was very bad where RCIF I dropped by more than 45%.” Ikkurty offered to “cash out [his] position on a high note”, based on the 30 November 2021 statement — a value much higher than that in mid-January 2022. The Court document states that,

That was good for that participant, but that money had to come from somewhere — Ikkurty used Jafia funds to give the investor the earlier (and higher) value. That is a classic Ponzi move.

When Jafia’s accounts were frozen, the company held only US$5.9 million. That was not enough to pay the crypto savings note and carbon offset bonds the US$26 million they were owed, plus 18% interest.

“That is a Classic Ponzi scheme,” Judge Rowland stated.

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