Judge sides with CFTC, deems OHM and Klima commodities in case involving crypto 'Ponzi'-like scheme

An Illinois district judge sided with the U.S. Commodity Futures Trading Commission and ordered an Oregon man and his company to pay over $120 million, partially in restitution, to victims in what the agency called a "Ponzi"-like scheme.

Sam Ikkurty of Oregon and his company Jafia, LLC made "material misrepresentations," Judge Mary Rowland of the U.S. District Court for the Northern District of Illinois said in an opinion issued on Monday, but posted by the CFTC on Wednesday. The CFTC had said Ikkurty and his firm failed to register and engaged in fraud.

Notably, Judge Rowland also said that cryptocurrencies OHM and Klima were commodities in the order.

"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 said in a statement.

The CFTC did not respond to a request for comment.

Both OHM and Klima are smaller cryptocurrencies compared to bitcoin, ether or dogecoin. However, the determination of which assets are securities, under the jurisdiction of the U.S. Securities and Exchange Commission, or commodities, which would then fall to the CFTC, has been an ongoing debate. CFTC Chair Rostin Behnam has said ether, for example, is a commodity, while SEC Chair Gary Gensler has said most cryptocurrencies are securities and has been less straightforward on ether's classification.

Judge Rowland's move to deem OHM and Klima as commodities may not hold that much weight at all beyond establishing the CFTC's jurisdiction over the case.

"I don't think it's a big deal," said James Brady, partner at Katten Muchin Rosenman LLP, in an interview. "I think it was more in response to the defendant trying to just aggressively say that the CFTC doesn't have jurisdiction."

The SEC could still deem both to be securities later on, Brady added.

The case involves charges brought by the CFTC in 2022 against Ikkurty and Ravishankar Avadhanam over allegations of fraud and failing to register with the agency. Avadhanam's case was dismissed in 2023 as part of an agreement with the CFTC, according to the order.

The CFTC said the two conducted a "Ponzi"-like scheme in soliciting about $44 million from at least 170 investors through a website and YouTube videos to then hold and trade digital assets, derivatives, swaps and futures contracts.

Jafia LLC developed a crypto savings note that touted to buyers it would garner 18% interest per year. Ikkurty instead invested those note funds into crypto such as OHM and Klima, according to the order, and at one point used funds purportedly raised for an investment to pay off early investors in the scheme in what the order calls "a classic Ponzi move."