SEC unable to locate BitConnect founder convicted in $2.4B fraud case

March 1, 2022 Coin Telegraph

BitConnect

BitConnect founder is being sued for illegally raising funds and defrauding American investors of over $2 billion.

Indicted by the United States Department of Justice in a $2.4 billion Ponzi scheme, BitConnect founder Satish Kumbhani remains untraced following conviction.

In a court filing on Monday, the Securities and Exchange Commission said that the whereabouts of Kumbhani remains unknown. The SEC noted that Kumbhani’s last known location was in his native country India, but has remained untraced ever since the promoter for his BitConnect Ponzi scheme was charged by the SEC for defrauding American investors of over $2 billion.

SEC in its filing noted that the convicted founder has most probably fled to a foreign country and “Kumbhani’s location remains unknown, and the Commission remains unable to state when its efforts to locate him will be successful, if at all." The founder is charged with wire fraud, operating an unlicensed money transmitting business, and three conspiracies: committing wire fraud; commodity price manipulation; and international money laundering

The BitConnect saga dates back to ICO-era and was among the most highlighted and talked about projects at the time. Founded in 2016, the crypto project became a global sensation by mid-2017 as it raised billions of dollars from global investors. The project promised a lending program based on proprietary “trading bot" and “volatility software" that would offer 10% earning to investors via BCC token.

The DOJ charged Kumbhani for running a Ponzi scheme via BitConnect’s lending program where the project managed to siphon off $2.4 billion from investors. Bitconnect’s native token BCC recorded an all-time-high trading price of $463.31 at the peak of the market frenzy in December 2017 reaching a market cap of $3.4 billion.

The founders rug pulled the project by January 2018, crashing the token price to near zero and causing massive losses to investors.

BitConnect (BCC) price history. Source: CoinMarketCap

The DOJ also accused Kumbhani of creating fake market demand for BCC to lure more unsuspecting investors. The project like many others in the ICO era turned out to be a massive pyramid scheme where the creators used early funds to pay off old investors and later ran away after collecting billions based on hype and ICO craze. . Several promoters of the project across Australia and the U.S. have already been convicted and facing jail.

U.S. Department of Justice Indicts BitConnect Founder in $2,400,000,000 Crypto Scheme

February 27, 2022 The Daily Hodl

US Charges Indian Citizen in $3.4 Billion Crypto Ponzi Scheme Bitconnect

February 27, 2022 Bitcoin.com

DOJ indicts BitConnect’s Indian founder for $2.4B crypto Ponzi scheme

February 26, 2022 Coin Telegraph

BitConnect

A San Diego-based federal grand jury charged Kumbhani for orchestrating an alleged Ponzi scheme via BitConnect’s “Lending Program” among other allegations.

The founder of the infamous crypto exchange BitConnect, Satish Kumbhani, has been charged for allegedly misleading investors globally and defrauding them of $2.4 billion in the process.

According to the Department of Justice (DOJ), a San Diego-based federal grand jury specifically charged Kumbhani for orchestrating the alleged Ponzi scheme via BitConnect’s “Lending Program”:

“BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators obtained approximately $2.4 billion from investors.”

Back in 2017 amid the hype, BitConnect (BCC) recorded an all-time high of $463.31 in trading price, which according to the DOJ reached a peak market capitalization of $3.4 billion. However, as evidenced by the graph above, the prices soon collapsed within a few months causing massive losses to investors.

Kumbhani, who resides in Gujarat, India, allegedly promised investors “ to generate substantial profits and guaranteed returns” under the BitConnect’s “Lending Program.” The indictment alleges Kumbhani used the funds from new investors to partially pay back the old investors until abruptly shutting down the program — operating a textbook Ponzi scheme.

The DOJ further stated that Kumbhani and his co-conspirators faked market demand for BCC through market manipulation. The resultant investments were allegedly concealed and transferred via “BitConnect’s cluster of cryptocurrency wallets and various internationally-based cryptocurrency exchanges.”

Supporting DOJ’s allegations, back in Sept. 2021, former BitConnect promoter Glenn Arcaro pled guilty to fraud charges related to his role in the now-defunct crypto exchange and lending platform.

The indictment also alleges that Kumbhani evaded U.S. regulations by failing to register with the Financial Crimes Enforcement Network (FinCEN), as required under the Bank Secrecy Act.

All in all, “Kumbhani is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering,” said the DOJ press release.

The case is currently being investigated by the FBI Cleveland Field Office and IRS Criminal Investigation (CI). If convicted of all counts, Kumbhani will be subject to a maximum total penalty of 70 years in prison. In addition, the DOJ recommends all BitConnect investors register themselves as potential victims.

On Feb. 20, a new class-action lawsuit demanded a jury trial against popular celebrities and influencers for their alleged participation in a classic pump-and-dump scheme relating to SafeMoon tokens.

As Cointelegraph reported, the lawsuit alleged that SafeMoon and its subsidiaries mimicked real-life Ponzi schemes by misleading investors to purchase SafeMoon tokens under the pretext of unrealistic profits.

Choose your fighter #SafeMoon #BitConnectttttt pic.twitter.com/b1GMnMHxuF
— W◎◎F of Wall Street | CwooFA (@WoofManCapital) April 21, 2021

Drafted by plaintiffs Bill Merewhuader, Christopher Polite and Tim Viane, the lawsuit looks to represent and compensate all individuals who bought SafeMoon tokens since March 8, 2021, and were victims of the alleged rug pull attempt.

Appellate court decision allows Bitconnect class action to proceed

February 23, 2022 Coin Telegraph

BitConnect

The superior court has reversed a lower court’s decision, making it possible for a class action to proceed against the promoters of one of crypto’s most infamous scams.

The 11th Circuit Court of Appeals has ruled that victims of the Bitconnect Ponzi scheme can proceed with a class action suit by reversing a previous ruling that prohibited such a case.

Bitconnect is the endlessly memed ICO from 2017 that collapsed in January, 2018. Appellate courts are superior courts that are used to review previously tried cases so the ruling may be reversed or confirmed.

The alleged victims may now move forward with a class action case against BitConnect (BCC) and its promoters Glenn Arcaro, Ryan Maasen, Trevon James, Ryan HiIdreth, and Craig Grant. There is no word yet on whether the complainants will proceed with the case.

The original complainants filed suit in order to be compensated for damages from being defrauded by BitConnect and its promoters. The complaint says promoters “made a mockery of state and federal securities laws.”

Law360 wrote on Feb. 22 that the defendants claimed in the Southern District of Florida that since marketing for the project was done using online mass communications platforms, they could not be held liable for securities fraud.

The defendants successfully argued that there could “only be liability when a seller directs solicitations to particular prospective buyers.” By using online social media platforms, the promoters argued that they had not directly solicited the cryptocurrency to buyers. Without that direct solicitation, they argued there was no securities fraud.

However, the Circuit Court decided to reverse the lower court’s decision to accept that argument since there is no precedent of the Securities Act of 1933 preventing online videos from being used in fraud charges.

Judge Britt C. Grant wrote for the court’s panel on Feb. 18:

"Because the Securities Act provides no free pass for online solicitations, we reverse the district court's dismissal of the section 12 claim.”

The Circuit Court’s panel called the lower court’s reading of the Securities Act “cramped” and said that it “makes little sense” as it would have held a person liable for soliciting a security in a personal letter, but not an internet video.

David Silver, an attorney in the original case against BitConnect and its promoters tweeted on Feb. 19 “This is an incredibly important decision that will reverberate for years to come.”

This new precedent adds greater legal risks and responsibilities for crypto promoters who use YouTube, Twitter, and other online communications platforms to shill crypto. Judge Grant wrote, "A new means of solicitation is not any less of a solicitation."

In recent years, YouTube has removed videos and shut down channels related to cryptocurrency it deems “harmful and dangerous.”

11th Circuit Court of Appeals reverses trial court decision in Bitconnect case and holds that peddling shitcoins in a non-targeted way on the interwebs (YouTube, Twitter etc) exposes promoters to liability from purchasers of unregistered securities. pic.twitter.com/Oh7BA4GGo2
— Palley (@stephendpalley) February 18, 2022

The Securities and Exchange Commission (SEC) filed suit against the founders and promoters last May, and received $12.6 million in cash and BTC through a settlement deal in August.

Last November, the Department of Justice (DOJ) said it planned to sell crypto it had seized from BitConnect valued at $56 million as potential compensatory payment for victims in future cases.

DOJ Selling Cryptocurrency Seized From Bitconnect Worth $56 Million

November 16, 2021 Bitcoin.com

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

November 16, 2021 Coin Telegraph

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

Bitcoin

“This liquidation is the largest single recovery of a cryptocurrency fraud by the United States to date,” said the Justice Department.

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.

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.