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CFTC indicts 2 men for running a $44M crypto Ponzi scheme

CFTC
TL;DR Breakdown
  • The Commodity Futures Trading Commission (CFTC) files charges against Oregon and Illinois residents, as well as a company based in Florida, for misappropriating $44 million of investor assets.
  • Ponzi schemes become more prevalent in the crypto sector.
  • Investigations point to NFTs as a criminal loophole to evade tax and launder money.

A number of recent Ponzi schemes have utilized decentralized finance (DeFi) infrastructure and the crypto ecosystem to steal from their investors. CFTC charged two Americans with running a cryptocurrency Ponzi scheme that defrauded hundreds of people out of $44 million in recent news.

CFTC charges participants in an ongoing features fraud

The Commodity Futures Trading Commission (CFTC) filed a complaint against Sam Ikkurty (also known as Sreenivas I Rao) of Portland, Ore., and Ravishankar Avadhanam of Aurora, Ill., as well as numerous corporate entities controlled by the defendants, alleging they conspired to deceive their investors into investing in a “so-called income fund invested in digital assets.”

The U.S. Commodity Futures Trading Commission (CFTC) has charged these two men with fraudulently soliciting at least $44 million for participation interests in a so-called income fund investing in digital assets and other instruments. The indictment also accuses the defendants of operating an illegal commodity pool and not registering as a Commodity Pool Operator with the CFTC. With respect to the CFTC, the defendants neglected to register as a Commodity Pool Operator.

In addition, the CFTC has added three funds owned and managed by the defendants, Ikkurty Capital LLC Rose City Income Fund, Rose City Income Fund II LP, and Seneca Ventures LLC, as relief defendants in possession of funds to which they have no legitimate interest.

On 11 May 2022, a U.S. District Court judge in Chicago named Mary Rowland signed an ex parte statutory restraining order, freezing the defendants’ assets and preserving documents, after which she appointed a Temporary Receiver. The plaintiffs were served with papers on 16 May 2022, and a status hearing got set for 25 May 2022.

In its continuing litigation, the CFTC is seeking compensation to defrauded investors, disgorgement of ill-gotten gains, monetary penalties, lifelong trading and registration bans, and a permanent injunction prohibiting future violations of the Commodity Exchange Act (CEA) and CFTC rules.

In 2017, Ikkurty and Avadhanam allegedly encouraged would-be investors in Ikkurty Capital, Rose City Income Fund, and Seneca Ventures to invest in various cryptocurrencies, promising extremely high returns – some as high as 62 percent per year. The complaint alleges that the pair promoted their business on a website and videos posted on YouTube.

In contrast, the CFTC found that Ikkurty and Avadhanam pooled investor funds and then distributed the majority of those assets as profits to other participants, reminiscent of a Ponzi scheme. The CFTC also said that Ikkurty and Avadhanam kept $18 million for themselves, moving the money to “other participants” and off-shore entities under their management.

A court in Illinois has granted a temporary restraining order against the assets in question, which freezes them, keeps records relating to the alleged fraud, and appoints a receiver over investor funds. The CFTC is seeking compensation, disgorgement, monetary penalties, and permanent trading bans and injunctions against future breaches of the Commodity Exchange Act (CEA).

Ponzi schemes surge in the crypto community

It appears that con artists are taking advantage of the decentralized ecosystem to perpetrate arts of fraud through Ponzi and pyramid schemes. The CFTC has published several customer protection fraud advisories and articles to warn the general public of potential hazards when dealing with virtual currencies, specifically Bitcoin futures and options.

The CFTC also strongly advises customers to double-check a firm’s registration with the Commission before investing. A client should be cautious about donating money to an unregistered business. 

The prices of most well-known cryptos have collapsed since November, with currencies that were promoted as safe and secure because they were linked to the buck and tracked via exchanges seeing their values plummet. However, the crypto market has not been entirely negative. There have been some bright spots.

Crypto evangelists noticed a thaw in the regulatory climate as global and national authorities began to explore and control the industry’s potential. During Russia’s unprovoked invasion of Ukraine, there was a surge. Many individuals were sending money in and out of Ukraine via crypto, once again proving how the currencies might one day get utilized. Despite those glimmers of hope, the crypto industry now finds itself at a fork in the road.

According to tax investigators, a $1 billion Ponzi scheme involving the cryptocurrency market exists. American tax officials revealed that they were following 50 distinct leads into scams focused on non-fungible tokens and other decentralized industry elements.

Niels Obbink, head of the Dutch Fiscal Information and Investigation Service, said during a news conference alongside the IRS’s revelation:

NFTs are one of the new modern digital ways of trade-based money laundering. And since there is, comparing with more well-known classic sectors, less control, and less supervision and a limited regulation that makes it vulnerable for fraud, it must have our attention.”

Niels Obbink.

The ability of cryptocurrencies to move across borders largely unnoticed has made it a valuable tool for fraudsters looking to prey on financially unsophisticated people. This has resulted in many criminal offenses, which regulators are attempting to combat and regulate as crypto grifters seek bigger and richer targets. 

Regulators have discovered a new approach that allows investors to utilize NFTs for criminal purposes. According to Jim Lee, the IRS’s chief of criminal investigations, NFTs encourage potential tax or financial crimes across worldwide jurisdictions. According to reports, investors from several different countries got implicated, including crypto buyers in the United States, the United Kingdom, The Netherlands, Canada, and Australia.

Florence Muchai

Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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