$44M Ponzi scheme charged with stealing $18M in funds
Two men are charged with multi-million Ponzi scheme by CFTC via US District Court in Illinois
Two individuals and a company have been charged with operating an illegal community pool and fraudulently soliciting $44 million via an “income fund investing in digital assets.”
The defendants are Sam Ikkurty, Ravishankar Avadhanam, and Jafia LLC, with a status hearing scheduled for May 25, 2022.
The three funds in question are Rose City Income Fund, Rose City Income Fund II LP, and Seneca Ventures LLC, with all assets being frozen by order of the District Court on May 11, 2022. According to information released by the CFTC,
“the CFTC seeks restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations.”
The complaint claims that the defendants used websites and YouTube videos to “solicit more than $44 million from at least 170 participants to purchase, hold and trade digital assets, commodities, derivatives, swaps and commodity futures contracts.”
It is alleged that instead of investing the funds in order generate a passive income through staking or well-managed trading that the defendants simply reallocated funds to other users in a manner akin to a Ponzi scheme.
Further, it is alleged that the “defendants also transferred millions of dollars to an off-shore entity that, in turn, may have transferred funds to a foreign cryptocurrency exchange” for a total of $18 million.
The websites referenced in the official complaint are currently parked, suggesting that no further investors will be susceptible to their alleged scam. According to cached versions of the site from 2021, the site claimed to have two rules;
“Rule #1: Pay investors a steady dividend of 15% per year on a
Rule #2: Remember Rule #1 GET STARTED TODAY LEARN MORE monthly basis in perpetuity”
A blog post from 2020 gives information on their “mining” activities. A term often used by crypto scammers to con novices to the crypto space.
Many people are familiar with crypto mining, but few understand what this means. Using the term “mining” is done consciously to lull investors into a false sense of security as they have heard there is money to be made in crypto mining. The post states;
“At Rose City Income Fund, we are focused on generating income for our investors. We generate income from operating digital toll-booths. These toll-booths collect fees whether the market goes high or low. We employ market-neutral strategies, that produce reliable income. One of our Portfolio holdings is Synthetix, which we were buying last year at $0.5. We got another opportunity to add more this year in March.”
Despicably, the website appears to target the elderly as it states that “retirees are unable to generate any income from their savings” yet, their fund is “focused on capital preservation.” One of the defendants recently tweeted,
“It is just horrifying to see what wrong economic incentives do to the world. ‘land of free’ has more prisoners than communist, authoritarian China which has a population that is 4 times bigger.”
The complaint outlines in fine detail how the defendants transferred funds between participants instead of investing in digital assets and staking as they had claimed. There are also records of customer funds being transferred into accounts owned and operated by the defendant’s own accounts.
Worryingly, if any of the customers’ funds were, in fact invested into crypto assets, they may not be retrievable as, in March, Ikkurty was “beginning to like $LUNA now. Do Kwon made a game changing move by backing a stable coin with bitcoin.”
If funds were invested in either LUNA or staked with Anchor Protocol they will be down over 90% at today’s value. From the report, however, there seems to be little evidence that the alleged Ponzi scheme invested in any crypto assets on behalf of its customers.