SEC sues bitconnect founder over an alleged $2B ponzi scheme
|On September 1, 2021, the U.S. Securities and Exchange Commission (SEC) announced that it had filed a complaint against BitConnect. Also included in the SEC's action was Bitconnect's founder, Satish Kumbhani.
The company allegedly did one of the biggest crypto Ponzi schemes ever to be charged criminally. By the time it went under, BitConnect had milked investors to the tune of $2 billion.
Allegations against Kumbhani and BitConnect
According to the SEC's complaint, Kumbhani and BitConnect conducted a fraudulent offering and sale of securities. The scheme occurred as a "Lending Program" offered by BitConnect.
SEC claims Kumbhani tricked investors into depositing funds into the Lending Program. Furthermore, the watchdog stated that Kumbhani falsely claimed BitConnect would deploy a proprietary "volatility software trading bot" to generate high returns for investors.
However, instead of deploying investor funds for trading with the trading bot, Kumbhani siphoned off investors' funds for his benefit. He allegedly transferred those funds to digital wallet addresses controlled by himself and his associates.
The SEC's lawsuit further claims that Kumbhani established a network of promoters around the world. Kumbhani then rewarded these promoters with hefty commissions for their efforts and outreach.
BitConnect promoter pleads guilty
One of BitConnect's most prominent promoters in the U.S. was L.A. resident Glenn Arcaro. Glenn Arcaro just pleaded guilty in federal court for his role in the BitConnect Ponzi scheme.
According to the federal court filing, Arcaro was at the top of an extensive network of promoters in Canada and the United States. He got arrested for forming a pyramid scheme known as the BitConnect Referral Program.
Glenn Arcaro earned 15 per cent of every investment into another part of the BitConnect scheme. He either reaped it from investors he recruited directly or those recruited by others beneath him in the pyramid. In this way, Arcaro made about $24 million.
Before Judge Mitchell D. Dembin, Arcaro admitted to conspiring to market Bitconnect's proprietary coin offering fraudulently.
Arcaro stated that he misled investors about the "BitConnect Trading Bot" and "Volatility Software." He claimed he could generate substantial profits and guaranteed returns by using investors' money to trade on the volatility of cryptocurrency exchange markets. However, Arcaro operated a Ponzi scheme by paying earlier BitConnect investors with cash from later investors.
Glenn Arcaro's sentencing for his role in the BitConnect fraud will be on November 15, 2021, before U.S. District Judge Todd W. Robinson. Whether Satish Kumbhani will follow Glenn Arcaro's example and accept the SEC's charges too is unknown.
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