SEC Sues now-Defunct BitConnect Founder for $2 Billion Fraud Conducted in 2017-18
The US Securities and Exchange Commission (SEC) has sued the founder of now-defunct cryptocurrency exchange BitConnect over its alleged role in fraudulently raising about $2 billion from thousands of retail investors from early 2017 through January 2018 without properly registering with regulators.
Founded in 2016, BitConnect launched a digital token called BitConnect Coin that can be exchanged for Bitcoin.
BitConnect’s “lending program” assured investors of 40% returns per month through a “volatility software trading bot” and showed fictitious returns to attract them, said the SEC.
BitConnect is characterized as a “textbook Ponzi scheme” by the prosecutors for paying early investors with new investor money.
Investors, however, lost much of their funds after BitConnect Coin’s value fell 92% on Jan. 16, 2018.
BitConnect shut down the same time after it fell victim to DOS cyber attacks and received cease and desist letters for the unauthorized sale of securities.
Now, after nearly four years, the SEC lawsuit seeks to impose fines, civil penalties, recoup ill-gotten gains, and other relief.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC's New York Regional Office, in a statement.
“We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
The top US securities regulator said on Wednesday that it had charged BitConnect founder Satish Kumbhani with lying about the company's ability to generate profits and violating registration laws that were meant to protect investors.
Kumbhani, 35, an Indian citizen, lived in Surat, but now his whereabouts are not known, and efforts to locate him have been unsuccessful.
Expanding a civil case announced in May, the US SEC also charged BitConnect promoter Glenn Arcaro and his Hong Kong incorporated firm Future Money Ltd as its top US promoter for fraudulently receiving more than $24 million in “referral commissions” and other sums.
Arcaro, who lives in Los Angeles, pleaded guilty to a related criminal wire fraud conspiracy charge and his sentencing is Nov. 15.
The SEC also sued five other promoters on May 28 and has obtained a judgment that required two promoters to pay more than $3.5 million and 190 bitcoin.