In the crypto world, a federal judge in Chicago has ordered Oregon resident Sam Ecorti and his related companies to pay more than $120 million to victims of what the Commodity Futures Trading Commission (CFTC) described as a “Classic Ponzi scheme.” The ruling, issued by Judge Mary Rowland on July 2, represents a major victory for the CFTC and sets a precedent for regulating lesser-known digital assets.
Webinars, promises and empty accounts
Ekurti, through his companies like Rose City Income Fund and Seneca Ventures, allegedly lured investors with promises of a fixed 15% annual return on investments in “stable” digital assets like Bitcoin and Ethereum. According to the CFTC, Ekurti used webinars and trade shows to spread these claims, touting the supposed success of his previous funds to attract new participants.
However, the court’s decision paints a different picture. Judge Rowland found that Ikkurty’s marketing materials were misleading.The CFTC investigation revealed that Ekorti did not invest in “stable” digital assets as he promised, but instead bet on riskier projects, even losing his personal bitcoins to a hack.
A classic case of people being deceived.
Perhaps the most egregious outcome concerns the alleged Ecorti operation. Ponzi schemeThe court details how Ekorti used money from new investors to pay promised returns to previous participants rather than generating returns through investments. This practice, known as a Ponzi scheme, is inherently unsustainable and eventually leads to the collapse of the scheme when new investors dry up.
The order also details the misappropriation of funds through the carbon offset program. Investors were told their money would be used to purchase digital assets tied to carbon offsets. However, the CFTC found that Ecorti diverted a significant portion of that money to previous investors in his other funds, resulting in a shortfall of more than $20 million for carbon offset program participants. Judge Rowland explicitly described the tactic as a classic Ponzi scheme.
Cryptocurrencies Take a Hit, CFTC Scores a Win
The court’s decision has significant implications for the cryptocurrency market. First, it highlights the potential for fraud in the still-evolving digital asset space. Investors should be wary of unrealistic returns and thoroughly research any investment opportunity before committing funds.
Second, the case establishes the CFTC’s authority over some Cryptocurrencies. Judge Rowland’s ruling not only classifies Bitcoin and Ethereum as commodities subject to the CFTC’s jurisdiction, but also includes two lesser-known cryptocurrencies, OHM and Klima. This would expand the CFTC’s regulatory authority within the cryptocurrency market and enable it to pursue similar fraudulent activity involving these digital assets.
Featured image from Unsplash, chart from TradingView
