The U.S. securities regulator on Wednesday (1 Sep) charged the founder of the now-defunct cryptocurrency exchange platform BitConnect, Mr. Satish Kumbhani over his alleged role in fraudulently raising about $2 billion from thousands of retail investors. This is in continuation of a civil law suit filed with the U.S. District Court for the Southern District of New York in May against the USA promoters of BitConnect. Mr. Satish is an Indian citizen.
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BitConnect lured investors with high returns based on investments leveraging market volatility, with a condition that traders had to purchase BitConnect Coins (BCC) through Bitcoin (BTC) deposits. The company closed abruptly in 2018.
According to the SEC’s complaint, from early 2017 through January 2018, defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a “Lending Program” offered by BitConnect. To induce investors to deposit funds into the purported Lending Program, defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary “volatility software trading bot” that, using investors’ deposits, would generate exorbitantly high returns.
The SEC alleged that instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro.
“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. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
In separate proceedings, the Department of Justice had announced that Glenn Arcaro pleaded guilty in federal court for criminal charges on his participation in a massive conspiracy involving BitConnect. The sentencing is scheduled in November 2021. The criminal charges include conspiracy to commit wire fraud and criminal forfeiture. The penalty may include twenty years in prison, $250,000 fine or twice the gross gain or loss from the offense.
In India, the Gujarat CID is investigating the matter. The law enforcement department had arrested the head of BitConnect India from Delhi Airport in August 2018.