US Court Rules Two Altcoins as Commodities

BiJie reported:
A U.S. court has upheld the Commodity Futures Trading Commission’s (CFTC) broader regulatory jurisdiction over digital assets.
On July 3, Judge Mary Rowland of the Northern District of Illinois issued a default judgment against Sam Ikkurty. Sam Ikkourty was charged by the CFTC for operating a “classic Ponzi scheme” that extracted $83.7 million from investors.
The court found that Ikkurty carried out the Ponzi scheme through so-called “cryptocurrency hedge funds” Rose City Income Fund I (RCIF I) and RCIF II. Ikkurty told investors that 65% of RCIF funds were invested in “stable proof-of-stake tokens,” but 90% of the funds were invested in OlympusDAO’s OHM tokens. A large portion of the remaining funds was invested in KlimaDAO’s KLIMA.
Both assets suffered extreme price fluctuations, leading to a 99% crash in RCIF I’s value in December 2021 and January 2022. Ikkurty was found guilty of misreporting fund performance and investment method, and using investors’ assets to pay fraudulent dividends to clients.
It is noteworthy that the court ruled that OHM and KLIMA qualify as commodity assets.
Judge Rowland stated: “The court fully recognizes that cryptocurrency fits within this broad definition.”. “This is because cryptocurrency shares a ‘core feature’ with ‘other commodities subject to CFTC regulation, including their derivatives’…These factual similarities…enable the CFTC to expand its jurisdiction from commodity ‘futures’ contracts to ‘spot commodity fraud’.”
The court determined that the Commodity Exchange Act “requires only that futures trading exist within a [category of assets] for all items within that category to be considered commodities.”
The court ordered Ikkurty to repay $83.7 million in client losses and nearly $37 million in commissions.
Digital asset commodities
This ruling is significant because it appears to expand the scope of cryptocurrencies considered commodities and supervised by the CFTC, rather than just cryptocurrencies tracked by regulated U.S. futures products.
OHM and KLIMA are unknown digital companies, ranked 242nd and 786th by market value, respectively. With the U.S. court ruling that OHM and KLIMA qualify as commodity assets, the ruling may make it easier for other digital assets to obtain commodity asset designations.
This news comes against the backdrop of a long-standing conflict between the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission (SEC) over when cryptocurrencies should be classified as securities or commodities.
The SEC has sought to classify assets with equity proof-of-stake consensus or distributed to the public through a single issuance as securities.
The situation between the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission over Ethereum (ETH) has become tense, with the U.S. futures product trading being regulated since February 2021, and the U.S. Securities and Exchange Commission even conducting a secret investigation in 2023 into whether ETH constitutes a security.
In March 2024, CFTC’s Rostin Behnam warned that the SEC’s apparent position that Ethereum is a security threatened, despite complying with CFTC guidance, to list Ethereum as a futures contract on exchanges regulated by the CFTC “incompatible with the rules of the U.S. Securities and Exchange Commission”.
Subsequently, the U.S. Securities and Exchange Commission dropped the investigation into Ethereum and approved a spot Ethereum ETF. With the passage of the 21st Century Financial Innovation and Technology Act (FIT21), it seems that the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission will have to cooperate on crypto regulation in the United States.