BitConnect founder sued over US$2 billion cryptocurrency fraud by US SEC

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Satish Kumbhani, BitConnect founder sued by the US Securities and Exchange Commission (SEC) for a $2 billion fraud misused bitcoin raised from investors world-wide.

Satish Kumbhani, BitConnect founder sued by the US Securities and Exchange Commission (SEC) for a $2 billion fraud misused bitcoin raised from investors world-wide.

Kumbhani violated multiple registration laws meant to protect investors the SEC said in its filing. The 35-year-old had earlier lived in Surat, India, but his whereabouts are unknown.

What is BitConnect?

BitConnect, debuted in 2016, closed its primary lending platform in early 2018 after state securities regulators warned investors of the “Ponzi-type nature” of the enterprise. 

At its peak BitConnect had a market cap of more than $2.6 billion and the coins reached a price as high as $400. Investors were promised a 1% return of investment on a daily basis, according to BitConnect’s website – which meant that a $1,000 initial investment would mushroom into $50 million in three years.

One of BitConnect’s earliest naysayers was ethereum founder Vitalik Buterin who condemned it as a “Ponzi scheme” in November 2017. BitConnect attracted more interest partly through its aggressive marketing program, which included digital and event marketing strategies as well as marketers tasked with finding new investors.

In late 2017, the British Registrar of Companies threatened to dissolve BitConnect, followed shortly thereafter by a letter from the Texas Securities Board and the North Carolina Securities Division ordering the company to shut down its operation. The North Carolina agency also alleged promoters of BitConnect were acting illegally.

Why was the BitConnect founder sued?

The top US securities sued the founder of the now defunct cryptocurrency exchange platform BitConnect over his alleged role in fraudulently raising about US$2 billion from thousands of retail investors.

In a civil case, the US Securities and Exchange Commission charged BitConnect founder Satish Kumbhani, an Indian citizen, with lying about BitConnect’s ability to generate profits, and violating registration laws meant to protect investors.

Later in a lawsuit in Manhattan federal court, the US SEC also charged promoter Glenn Arcaro and his firm Future Money Ltd with fraudulently receiving more than US$24 million in “referral commissions” and other sums as BitConnect’s top US promoter.

Arcaro was pleaded guilty on Wednesday to a related criminal wire fraud conspiracy charge before US Magistrate Judge Mitchell Dembin in San Diego. His sentencing is Nov 15.

Founded in 2016, BitConnect created a digital token called BitConnect Coin that could be exchanged for bitcoin, the popular cryptocurrency. The SEC sued five other BitConnect promoters on May 28. It has obtained judgments requiring two promoters, Michael Noble and Joshua Jeppesen, and Jeppesen’s fiancee to pay more than US$3.5 million and 190 bitcoin. The other promoters have not responded to the lawsuit or not been served.

Efforts to locate Satish Kumbhani were unsuccessful. Arcaro’s lawyer did not respond to requests for comment.

Dylan Leighton

Dylan Leighton

Dylan Leighton is an composer, music producer, sound designer and mix engineer from the United Kingdom. Making music for over 40 years, he creates music for corporate clients, film and video, and his own personal enjoyment. Writing under the artist name Kalliste, he has composed in just about every genre, from hip-hop to funk to classical.

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