BitConnect’s founder was indicted by a federal grand jury for orchestrating a $2.4 billion cryptocurrency Ponzi scheme, the U.S. Justice Department said.
Satish Kumbhani, 36, of Hemal, India, the founder of BitConnect, misled investors about BitConnect’s “Lending Program, officials said.
Under this program, Kumbhani and his co-conspirators touted BitConnect’s purported proprietary technology, known as the “BitConnect Trading Bot” and “Volatility Software,” as being able to generate substantial profits and guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange market.
However, BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors.
In total, officials said Kumbhani, who is currently at large, and his co-conspirators obtained about $2.4 billion from investors.
In addition, officials said, Kumbhani abruptly shut down the Lending Program and then directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency, a commodity known as BitConnect Coin (BCC), to create the false appearance of legitimate market demand for BCC.
Kumbhani and his co-conspirators also concealed the location and control of the fraud proceeds obtained from investors by commingling, cycling, and exchanging the funds through BitConnect’s cluster of cryptocurrency wallets and various internationally based cryptocurrency exchanges.
To avoid regulatory scrutiny and oversight of BitConnect’s cryptocurrency offering, the indictment said, Kumbhani evaded U.S. regulations governing the financial industry, including those enforced by the Financial Crimes Enforcement Network (FinCEN).
While BitConnect operated a money transmitting business through its digital currency exchange, BitConnect never registered with FinCEN, officials said, as required under the Bank Secrecy Act.
Transcending International Boundaries
“Crime, particularly crime involving digital currencies, continues to transcend international boundaries,” Assistant Attorney General Kenneth Polite Jr. of the Justice Department’s Criminal Division, said in a statement.
Founded in 2016, BitConnect’s prices peaked in December 2017 and it became one of CoinMarketCap’s best-performing coins of 2017.
The founders pulled out a short time later and in September 2021, U.S. regulators sued BitConnect and its founder, Satish Kumbhani, for a $2 billion fraud.
Last year, the Securities and Exchange Commission charged Kumbhani and Glenn Arcaro, BitConnect’s top promoter, for their role in the $2 billion fraud.
Arcaro pleaded guilty to federal charges for his participation in the massive conspiracy in September.
At the time, officials said the “BitConnect scheme is believed to be the largest cryptocurrency fraud ever charged criminally.”
Kumbhani is charged with conspiracy to commit wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
If convicted of all counts, he faces a maximum total penalty of 70 years in prison.