Commodity Futures Trading Commission v. Ikkurty

The federal district court for the Northern District of Illinois found that defendants who operated “crypto hedge funds” whose investment products included “carbon offset bonds” (COBs) committed civil violations of the Commodity Exchange Act. The Commodity Futures Trading Commission (CFTC), which brought the suit, described the COBs as promissory notes advertised as offering a collateral (Base Carbon Tons tokens) as security. The court found that the defendants defrauded investors by making material misrepresentations of fact. With respect to the COBs, the court found, for instance, that the defendants failed to inform COB purchasers that the same digital wallet holding the collateral was pledged as collateral to dozens of purchasers. The court also found that the CFTC established that the defendants misappropriated funds through the carbon offset program in a “classic Ponzi scheme” in which the defendants bought out investors in a collapsed fund at a pre-crash price, leaving the defendants with insufficient funds to pay COB participants what they were owed. The court also found that the defendants failed to register as a commodity pool operator (CPO) and committed CPO fraud. The court ordered restitution in the amount of customer losses (more than $85 million) and ordered disgorgement of collected commissions (almost $37 million).