An Illinois district judge sided with the U.S. Commodity Futures Trading Commission's charges against Sam Ikkurty and his company, Jafia, brought in 2022. According to the summary judgment, the defendant committed several violations of the  CFTC regulations, including fraud, failure to register, and misappropriated funds operating as “a classic Ponzi scheme.” Interestingly, apart from Bitcoin and Ethereum, the judge also qualified OHM and Klima currencies, which were involved in the fraud case, as digital asset commodities in her 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,” - states the announcement. 

The CFTC's jurisdiction primarily extends to derivatives markets, including futures, options, and swaps trading involving cryptocurrencies like Bitcoin and Ether. This Spring, the authority directly stated that Bitcoin, Ether, and Litecoin are commodities in the case against KuCoin.

The defendant argued that the CFTC’s authority does not extend to any cryptocurrencies, not just the four mentioned in the case. However, the judge called OHM and Klima commodities as part of her general consent to the CFTC’s allegations. The decision to qualify OHM and Klima as commodities establishes the CFTC's jurisdiction over the case and likely won’t have broader implications.

The court also found that Ikkurty misappropriated funds through the Carbon Offset Program. His company Jafia offered its customers two instruments to invest in: a crypto savings note (CSN) and a carbon offset collateralized bond (COB). According to the complaint, Ikkurty promised to invest contributions in stable proof-of-stake tokens but ended up investing the bulk of CSN funds into cryptocurrencies OHM and Klima. 

The KlimaDAO, launched in 2021, aims to create a transparent public infrastructure in the carbon credit market and promote the financing of climate action. Its native coin, $KLIMA, is mainly used for DAO governance and staking. The company has claimed that every token is backed “by at least one carbon ton in the KlimaDAO treasury.”

Recently, KlimaDAO’s Japanese subsidiary announced cooperation with Mitsubishi UFJ Trust and Banking Corporation (MUFG) to settle its carbon credits using JPYC stablecoin. KlimaDAO was planning to establish the blockchain-based carbon marketplace and integrate it with MUFG's Progmat Coin platform.

The second project where Ikkurty had funneled the funds, Olympus protocol, is a DeFi system that supports “a free-floating OHM flatcoin that programmatically and transparently enforces a price range”.

Flatcoins are inflation-proof tokens that reference a specific basket of goods and services in order to keep pace with the rate of inflation. The value of a flatcoin is designed to remain constant in terms of what it can buy.

The project, headquartered in Amsterdam, claims that it wants to fill the gap between fiat stablecoins and volatile crypto assets. Olympus pioneered the concept of Protocol-Owned Liquidity, where the protocol itself owns and controls the liquidity rather than relying on external liquidity providers.

In 2021, Olympus faced considerable scrutiny and was also accused of being a Ponzi scheme. The token was trending and promised incredible API, which apparently convinced Ikkurty to invest almost 90% of his first fund into the token. Later, the DAO cut the annual yield to maintain the sustainability of the project. Apparently, it managed to outgrow this period, but its coin fell significantly in 2022 and Olympus lost its prominence. Remarkably, the protocol went through almost 900 forks by now.

Both tokens are relatively small: $KLIMA is ranked 697th by market capitalization on CoinMarketCap, and $OHM data is not even verified. This is, let’s say, far from major virtual currencies such as Bitcoin and Ethereum, so the unintentional comparison made by the judge might have flattered the two projects. As the price of both tokens is extremely volatile, we cannot assert that it was significantly altered by the court decision, but on July 3, both coins saw a price decline. Neither company has commented on the court decision so far.

One lawyer suggested that the SEC could still deem both to be securities. This contradiction would not be surprising, as the debate over the determination of which assets are securities under the jurisdiction of the SEC or commodities controlled by the CFTC has been ongoing for a long time. 

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