BitConnect Founder Charged with Orchestrating Global Crypto Ponzi Scheme Worth $2.4B

A U.S. grand jury indicted Satish Kumbhani, the founder of BitConnect, orchestrating a fraud scheme that siphoned approximately $2.4 billion from investors, according to the Department of Justice.  

The 36-year-old from Hemal, India, with his co-conspirators, deceived investors’ money to gain substantial profits by taking advantage of the volatility of crypto exchange markets through BitConnect’s “Lending Program.” 

Hemal convinced investors that the program was powered by a cutting-edge technology called the “BitConnect Trading Bot” and “Volatility Software.”

In reality, according to the indictment, it was a well-orchestrated textbook Ponzi scheme where earlier BitConnect investors were paid using money from later investors.

Before going underground in 2018, the cryptocurrency scam had hit a peak market capitalization of $3.4 billion, and this was attained through the manipulation of its digital currency called BitConnect Coin (BCC).

Despite being large, Kumbhani was charged with various counts, such as operating an unlicensed money transmitting business and conspiracy to commit wire fraud and international money laundering. If convicted, he could be incarcerated for a maximum of 70 years. 

Eric Smith, a special agent in charge of the FBI’s Cleveland Field Office, noted:

“Today’s indictment reiterates the FBI’s commitment to identifying and addressing bad actors defrauding investors and sullying the ability of legitimate entrepreneurs to innovate within the emergent cryptocurrency space.” 

Ryan Korner, a special agent in charge of the IRS Criminal Investigation’s office in Los Angeles, added:

“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars.”

Kumbhani’s indictment comes months after crypto worth $57 million was seized from Glenn Arcaro, a top American-based BitConnect promoter. Victims were to benefit from the liquidation of the crypto assets after a court gave the go-ahead. 

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Victims of BitConnect Ponzi Scheme to Benefit from the Liquidation of $57M Crypto Assets

Tagged as the largest cryptocurrency scam on American soil, the BitConnect fraud scheme siphoned more than $2 billion from investors before going underground in January 2018. - 2021-11-17T172959.693.jpg

Victims might feel relieved as the U.S. Attorney’s Office for the Southern District of California, and the U.S. Postal Investigative Service has been granted a court order to liquidate Bitconnect’s crypto proceeds. 

The cryptocurrencies, including Bitcoin, Litecoin, Ethereum, and Dash, worth approximately $57 million, will be sold at current rates after being seized from Glenn Arcaro, a top American-based BitConnect promoter.

Arcaro pleaded guilty for his participation in the crypto fraud scheme, making BitConnect emerge as the biggest cryptocurrency scam to be ever charged criminally. 

The Justice Department acknowledged that Arcaro is scheduled to be sentenced in January 2022 and faces imprisonment of up to 20 years. 

The crypto scam never end

Crypto scams continue wreaking havoc as victims lose vast amounts of money. For instance, in 2020, a Romanian programmer confessed to helping create Bitclub Network, a Bitcoin mining Ponzi scheme that siphoned off funds valued at $722 million. 

Moreover, Plus Token Ponzi scheme, a global pyramid network, was entrenched on Chinese soil and abroad. It caused a wide-ranging panic in June 2019, after some Korean and Chinese investors could not withdraw Bitcoin funds from their wallets, which was dismissed as a mere hacker attack.

Scammers have also devised ways to impersonate high-profile figures like Bill Gates and Elon Musk, as witnessed in the 2020 Twitter hack involving Bitcoin.

Nevertheless, the relevant authorities are cracking the whip in addressing the crypto scam issue, as evidenced by the liquidation of BitConnect’s crypto proceeds and the looming Arcaro’s incarceration. 

Furthermore, the Australian Securities and Investments Commission (ASIC) raised the alarm and banned John Louis Anthony Biggatton, a former Australian BitConnect representative, from offering financial services for seven years. 

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US Justice Dept is selling $56M in crypto to compensate victims of BitConnect’s fraud

The United States Department of Justice is planning to sell $56 million worth of cryptocurrency seized in connection with its case against Ponzi scheme BitConnect.

In a Nov. 16 announcement, the Justice Department said it would sell the seized crypto and hold the proceeds in U.S. dollars until it could use the funds to provide restitution to BitConnect victims. The U.S. government is currently holding the $56 million in crypto in wallets, and said the amount of compensation to those affected by BitConnect’s fraud would depend on a “future restitution order by the court at sentencing.”

“This liquidation is the largest single recovery of a cryptocurrency fraud by the United States to date,” said the Justice Department, also calling those involved with BitConnect the largest cryptocurrency fraud scheme to ever face criminal charges.

It’s unclear through what means the U.S. government would handle the sale of millions of dollars worth of cryptocurrency, or what effect it may have on the price of major assets like Bitcoin (BTC) and Ether (ETH). According to data from Cointelegraph Markets Pro, the BTC price is hovering close to $60,000 after dropping roughly 7% today, while the price of ETH is $4,254 at the time of publication, following a similar drop.

The actors behind BitConnect were responsible for running a fraudulent unregistered securities offering that netted them $2 billion. The project’s former director and promoter Glenn Arcaro pled guilty to fraud charges in September and has been ordered to pay $24 million to BitConnect’s victims.

The Securities and Exchange Commission, or SEC, also filed charges against both Arcaro and BitConnect founder Satish Kumbhani, whose whereabouts are unknown at the time of publication. Settlements with the SEC for other individuals involved in the Ponzi scheme are pending, but many people are facing prison time or severe financial penalties for their role in allegedly scamming investors.

Related: SEC charges 5 for illegally promoting $2 billion Bitconnect Ponzi scheme

Created in 2017, BitConnect had promoters lure investors with promises of large returns, enticing them to use BTC as collateral against which they could borrow and trade the platform’s native token. The lending platform closed in 2018 after cease and desist orders from state regulators, leaving many investors unable to redeem their crypto holdings.