The US Securities and Exchanges Commission (SEC) has sued Satish Kumbhani, founder of BitConnect, over his alleged role in fraudulently raising $2 billion in crypto.
Founder Charged, Promoters Named
Satish Kumbhani, who was the US promoter for the exchange, has allegedly been lying about BitConnect's ability to generate profits and violating registration laws meant to protect investors. According to the press release issued by the agency, the civil lawsuit filed against Kumbhani addresses BitConnect as “a global fraudulent and unregistered offering of investments into a program involving digital assets.”
The SEC filed a separate lawsuit against promoter Glenn Arcaro and his firm Future Money Ltd on charges of fraudulently receiving more than $24 million in “referral commissions” and others as a part of the BitConnect scam. Arcaro has pleaded guilty to the charges. Five other BitConnect promoters have also been named in the BitConnect lawsuit. Two of them, Michael Noble and Joshua Jeppesen have already been charged with paying fines of $3.5 million and 190 BTC, where the rest are yet to be served or to respond.
The BitConnect Ponzi Scheme
According to the SEC’s investigations, the BitConnect “lending program” was a textbook Ponzi scheme. Earlier investors were being paid with new investor money, lured in with the fraudulent promise of 40% returns per month as well as 3700% annual gains. In addition, the company claimed that it used a “volatility software trading bot” that helped it generate high profits. However, once the BitConnect coin price dropped a whopping 92% on January 16th, 2018, almost all investors lost most of their money.
The Scam Unravelled
Despite being a prominent presence at the Blockchain Expo as well as the ICO EVENT conference in Amsterdam, BitConnect was slapped with cease-and-desist orders by the Texas Securities Board and the North Carolina Securities Division back in January 2018, claiming fraudulent activities. Following this, the promoters started distancing themselves, especially on the same social media platforms where they had previously been singing praises of the BitConnect platform. To negate the bad press, BitConnect started its own news segment and swept all the negative coverage under the rug by churning out more content.
However, BitConnect’s shenanigans finally caught up when the company decided to shut down its lending and exchanging platform, and plunged to $30 in value. Distraught investors and traders took to social media to discuss widespread losses, indicating how deep the BitConnect scam really ran.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.