Jafia and Rose City Income Fund: Steady Income From the Next Investor’s Deposit

The Jafia and Rose City Income Fund CFTC judgment imposed a $110,901,855 civil penalty after the court found that the operators sold false crypto returns and used new investor money to pay earlier participants. Someone preparing the presentations, processing the payments or tracking the wallets could see a different business from the one investors were sold. The promised income and the source of the money were different stories.

The Commodity Futures Trading Commission won its fraud and registration claims against Jafia LLC and its principal in the federal district court in Northern Illinois on July 1, 2024. The court’s final judgment on July 22, 2024 added the civil penalty and permanent trading bans to the repayment obligations already decided.

The Income Pitch Behind Rose City Income Fund

Rose City Income Fund sold an income strategy, with regular payments supposedly generated by crypto investments. The first fund, Ikkurty Capital LLC doing business as Rose City Income Fund I, began in 2017. Jafia served as general partner of that fund and of Rose City Income Fund II, launched in 2021. The principal controlled investment decisions through Jafia.

A commodity pool brings participants’ money together for commodity-interest trading, while the pool operator runs the business and solicits or receives that money. Here, the partnership agreements, offering materials and subscription documents set out what participants were buying and what Jafia could do with their contributions. The court found that neither the principal nor his ventures had registered with the Commodity Futures Trading Commission.

The court’s account of the sales materials describes weekly webinars, trade shows, a website and PowerPoint presentations. They promised steady annual income of 15%, generated through fees on “digital tollbooths” and proof-of-stake mining. The offering memorandum described periodic payments of net profit.

That last phrase carried the proposition an income investor was buying: the fund would earn money and distribute the earnings. Investors who testified said they understood the payments that way. The court found that the operators returned no net profits and instead redistributed later investors’ contributions to earlier investors. The payments were real. The explanation was false.

The Performance Presentation Stopped Before the Losses

The principal used an overstated record of the first fund’s performance to recruit investors into the second. An Excel spreadsheet fed the marketing presentations. He admitted entering incorrect monthly figures, although he disputed the Commission’s corrected calculation.

The presentation claimed that a hypothetical $100 invested at the first fund’s inception would have grown by 2,708% through October 2021. The Commission’s reconstruction using accurate return records put the gain at 759%.

Then the presentation stopped moving while the fund kept losing money. The court recorded a loss of 98.99% of the first fund’s aggregate returns from November 2021 through March 2022. The principal continued using the presentation that ended in October.

The defense argued that participants understood historical returns did not promise future results and knew crypto could be volatile. The court rejected that answer to false historical figures and undisclosed losses. We see the absurdity plainly: investors’ willingness to take a risk became the excuse for giving them an inaccurate account of the risk they were taking.

The portfolio also contradicted the sales pitch. Investors had been told that 65% of the second fund would go into stable proof-of-stake tokens. Nearly 90% went into OHM, which the principal admitted was unstable during the relevant period. The fund also held Ethereum and wrapped Bitcoin, a digital asset representing Bitcoin’s value.

The offering memorandum later dropped the description of distributions as net profit. The principal decided not to tell participants about the change. For an employee handling investor communications, the change in wording and the decision to leave customers uninformed concern the same payment stream.

Carbon Offset Bonds Bought Out Earlier Investors

Jafia used money from a new set of products to support inflated buyouts of earlier fund investors. The court found misappropriation through that carbon-offset program as a separate part of the fraud.

Jafia offered crypto savings notes and carbon offset bonds. Both promised monthly interest payments and repayment of principal at the end of the term. The bonds were advertised as collateralized, while the savings notes were not. Purchasers were promised 18% annual interest, with 80% of contributions supposedly invested in stable proof-of-stake tokens.

The Commodity Futures Trading Commission’s original complaint quoted a video selling the savings note:

The later court findings show what stood behind that assurance. The principal invested the bulk of the savings-note funds in OHM and Klima. He offered the same digital wallet as collateral to dozens of carbon offset bond purchasers without telling them. He also promised to spend 8% of savings-note funds on put-option protection and did not buy it.

The collateral problem concerned the claims attached to the wallet. Showing a purchaser a wallet address left out the other purchasers relying on it. The protection problem was more direct: the promised options were absent. We would want to connect the promise to the collateral commitments, control of the wallet and evidence of the option purchases.

After the first fund collapsed, Jafia offered participants cash buyouts or carbon offset bonds based on earlier, higher values. The court put the comparison plainly: $29 million in cash and bonds for stakes worth only $7.7 million. The buyouts occurred after losses but before the monthly statements. Money from the new products supported the favorable exit offered to earlier investors.

That left Jafia owing note and bond purchasers $26 million in principal while holding $5.9 million in total assets when the Commission filed the action. The company backing the promise had used the money to support somebody else’s exit.

Seneca’s Bank Description and the Investor Deposits

The Commodity Futures Trading Commission’s complaint alleged that Seneca Ventures described itself to a bank as a “technology consulting firm in software programming.” Incoming wire memos identified investments. The Commission alleged that money from that account went to other participants and accounts controlled by the defendants, with none transferred from that bank to a trading account at an exchange or dealer during the period described.

The complaint also alleged transfers from Seneca accounts into a Rose City account, then from Rose City to Jafia and an offshore entity associated with a crypto exchange. The company name on a receiving account, the stated purpose of a deposit and its next destination supply different pieces of the same transaction. For someone who handled those transfers, the account’s description explains less than the instructions that moved the money.

Why the CFTC Could Pursue the Crypto Fund

The court treated OHM and Klima as commodities, so the Commodity Futures Trading Commission could pursue the crypto fraud. It also found that Jafia and its principal acted as commodity pool operators and had failed to register.

The fundraising promises mattered. The partnership documents authorized investments in futures, options and swaps, and the savings-note pitch promised put options on digital currencies. The court held that soliciting money for those purposes required Jafia and its principal to register. The promised options mattered to the case even though the principal never bought them.

The Final Judgment Separated Repayment From Penalties

Alongside the civil penalty, the court ordered Jafia and its principal to repay $83,757,249 for customer losses. The court also ordered Jafia, its principal, Rose City Income Fund I, Rose City Income Fund II and Seneca Ventures to give up $36,967,285 in gains. Customer restitution payments by Jafia and its principal reduce that disgorgement obligation. Payments toward the shared disgorgement obligation also reduce what the other parties owe.

The court permanently prohibited Jafia and its principal from trading digital assets or commodity interests, soliciting money for those investments and registering with the Commission. Across CFTC enforcement outcomes, who must repay customers and who faces a trading ban are different parts of the result.

Assets Taken From the Receiver Were Recovered

The principal’s transfer of digital assets out of the receiver’s wallets produced a separate asset-return order. The judgment required him to return those assets or pay $13,817,000, their stated value.

In its September 3, 2024 announcement, the Commodity Futures Trading Commission reported recovering more than $18 million in digital assets stolen from the receiver. The agency said it located the assets and caused their return on August 27 for distribution under the court’s order.

What Evidence Is Required to Prove Fraud?

For a fund selling investment income, the evidence connects the promised source of returns with the transactions that actually funded the payments. Rose City’s case brings together performance spreadsheets, presentations, offering documents, investor testimony, portfolio holdings and transfers between participants and companies.

There is a useful verification point in Merchants of Integrity?, the Global Integrity Anti-Corruption Evidence Programme’s 2022 report. Its discussion of blockchain records and commodity markets explains that blockchain information remains only as reliable as what enters the system, and that transaction identities are pseudonymous. Applied here, that means the wallet history needs the agreements and communications that explain whose money it held and what each purchaser was promised. A transaction trail alone cannot explain the undisclosed promises made against the same wallet.

The source of a supposed return also matters in fraud built around invented trading profits. In its complaint involving FOREXNPOWER, the Commodity Futures Trading Commission alleged that a customer requesting a withdrawal was told repayment would follow another investor’s contribution. It separately alleged that an email claimed profitable trading while most managed accounts had lost money. The parallel is the mismatch between what customers were told they had earned and where payment would actually come from.

Our work connects bank and wallet flows with the records behind the statements: the underlying transactions, custody permissions, withdrawal controls and instructions for generating account balances. Someone who knows why a presentation stopped at a particular month, who supplied its figures or which deposit funded a payment can explain a connection the numbers leave unstated.

Under the CFTC’s whistleblower program, eligible whistleblowers can share 10% to 30% of monetary sanctions collected. Separately, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers, a range described in the International Labour Office’s 2019 paper Law and Practice on Protecting Whistle-Blowers in the Public and Financial Services Sectors.

You Know Where the Payments Came From

If you worked with a fund’s return calculations, investor statements or transfers, speak to one of our Whistleblower Experts about how the payments were funded. We build the case around what you know and bring in CFTC whistleblower lawyers who understand commodity pools and digital-asset tracing. We stay beside you as the promises, the records and the people controlling the money become a case the agency can act on.