The U.S. Commodities Futures and Trading Commission (CFTC) has taken legal action against an Ohio resident it says ran a $12 million Ponzi scheme involving bitcoin, a complaint filed at a district court in the state on Thursday shows.
A Ponzi scheme is a type of investment fraud whereby original investors are paid with funds collected from new investors.
The complaint, filed at the Southern District of Ohio, is a cease-and-desist order against one Rathnakishore Giri and his two companies: SR Private Equity LLC and NBD Eidetic Capital LLC. The CFTC also wants the court to make Giri pay back his wronged investors.
Giri is accused of engineering and perpetuating a scheme designed to dupe investors interested in digital assets, according to CFTC Commissioner Kristin N. Johnson.
"Under the guise that he operated a private equity investment fund with a focus on investing in digital assets, Giri seized upon the contemporary fervor for digital asset investment opportunities and lured unwitting investors to contribute over $12 million in cash and bitcoins to his funds with the promise of exceptional returns without the risk of financial loss," Johnson said in a statement published Friday.
The complaint was filed a day after the CFTC, alongside the U.S. Securities and Exchange Commission (SEC) voted to advance a proposal that seeks to broaden reporting requirements of private funds and large hedge funds to include crypto holdings. The proposed rules are part of a joint effort by the regulators to increase transparency of how private funds in the country operate and what assets they manage.
The CFTC alleges Giri violated commodities laws and regulations that prohibit the manipulation of information and "deceptive devices." Johnson, in her statement, said that Giri used investors' money to fund a lavish lifestyle "characterized by use of private jets, yacht rentals, an extravagant vacation home, a luxury car and expensive clothing."
In addition to ordering Giri to cease all activities related to the fraud, the CFTC wants him to disgorge any monetary benefits "directly or indirectly" attached to the violation of regulations, including and not limited to salaries, commissions, loans, fees, revenues and any trading profits.
In her statement, Johnson said the CFTC "rigorously surveys markets and enforces regulations" but new financial products like digital assets can "create new challenges."
"This case illustrates these dangers, underscores the ever-present threats, and demonstrates that – no matter the asset class – effective enforcement and customer protections must be among our highest priorities," Johnson said.