Finance

BitConnect and founder Satish Kumbhani under regulatory fire over alleged crypto scam

The Securities and Exchange Commission accused BitConnect and its founder, Satish Kumbhani, of a $2bn fraud that misused bitcoin raised from investors worldwide. An American promoter for the scheme, Glenn Arcaro, pleaded guilty in federal criminal court over his role in fleecing US investors.

BitConnect sold its own digital asset in 2016 in exchange for bitcoin, the world’s most valuable cryptocurrency. BitConnect said it had an automated program that would make money by trading the contributed bitcoin. Profits would be shared with investors through interest payments.

BitConnect didn’t use a program to trade bitcoin, the SEC said. Instead, Kumbhani siphoned off some for himself and shared other amounts with promoters who helped him raise the money. Kumbhani, 35 years old, lived in India at the time he conducted the alleged scam. Regulators don’t know where he is now, the SEC said in its lawsuit, which was filed in Manhattan federal court.

Bitconnect and Kumbhani couldn’t be reached for comment. An attorney for Arcaro didn’t immediately return messages seeking comment.

Some investors were paid back funds using the contributions of newer investors, the hallmark of a Ponzi scheme, regulators said. The company’s website advertised historical returns of up to 2% daily, with no negative returns for any day, and an annualised return of approximately 3,700%, the SEC said.

Many investors lost all or nearly all of their funds, the SEC said in a previous lawsuit that targeted several of BitConnect’s US promoters. Thousands invested in BitConnect.

“We allege that these defendants stole billions of dollars from individual investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, associate regional director of SEC’s New York office.

Arcaro, 44, created a network of US promoters, who talked up BitConnect’s program through videos on YouTube and earned commissions for steering money to BitConnect. Arcaro and his company received more than $24m in commissions and other payments, the SEC said.

Arcaro pleaded guilty on 1 September in San Diego federal court to one count of conspiracy to commit wire fraud, according to prosecutors. He will be sentenced in November and faces a maximum penalty of 20 years in prison and a fine equal to $250,000 or two times the amount of his unjust enrichment, whichever is greater.

The SEC also named Arcaro as a defendant in its civil fraud lawsuit. The SEC’s lawsuit accuses the defendants of fraud and other violations and seeks to have the defendants pay back money they took from investors and pay civil monetary fines.

Write to Dave Michaels at [email protected]

This article was published by Dow Jones Newswires

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