Published
1 year ago on
January 13, 2023
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The US Department of Justice (DOJ) has ordered to distribute over $17 million in restitution to 800 victims of the BitConnect fraud.
The announcement comes as some relief for victims, although the $2.4 billion fraud impacted thousands more.
Some Respite For Victims
A small group of victims of the BitConnect Investment Scheme will see some respite after a US court ordered that $17 million in restitution be distributed among them. The announcement means that around 800 victims from 40 countries will receive a part of the $17 million restitution. The United States District Court ordered the restitution for the Southern District of California on the 12th of January, 2023, according to a press release by the US Department of Justice (DOJ).
A Ponzi Scheme
According to the DOJ statement, BitConnect described itself as a crypto lending platform that utilized proprietary technology such as the “BitConnect Trading Bot” and “Volatility Software,” which it claimed would guarantee returns to investors. The platform also promised users an average daily compounding interest of 1% or 3700% annually. Investors could trade their BTC and receive BitConnect Coin (BCC) tokens in return, which users could lend out and receive varying interest rates.
However, the platform turned out to be a run-of-the-mill Ponzi scheme, with early investors being paid by funds collected from new investors, a cycle that kept repeating itself. Those associated with the platform were charged and found guilty of several offenses. The platform’s founder, Satish Kumbhani, was indicted in February 2022, and its US promoter, Glen Arcaro, pleaded guilty in September 2021. Both Kumbhani and Arcaro were also sued by the US Securities and Exchange Commission (SEC). According to the DOJ, Arcaro and other BitConnect executives used 15% of investor funds to create a slush fund used to benefit its founder and other promoters.
Whereabouts Of Founder Unknown
BitConnect launched in 2016 but collapsed in 2018 after stealing around $2.4 billion from over 4000 users based in 95 countries. While the DOJ charged Kumbhani, he is also the subject of a police investigation in India. However, his current whereabouts are unknown. While authorities from a number of countries took action against BitConnect and its operations, the platform’s decentralized nature and lack of centralized leadership made it difficult to stop. This also meant that some developments around the platform continued even after regulators stepped in to restrict operations.
A Long Wait
Due to its founder’s unknown whereabouts, victims of the fraud have had to endure a long wait for compensation. In November 2021, the Department of Justice seized $56 million worth of cryptocurrency. The Department of Justice intended to sell the seized assets and distribute the funds to the scam victims as restitution. The seized funds would be worth $17 million in the current market, although the DOJ did not specify when the seized crypto assets were sold for cash.
However, the restitution set to be returned will be given to only a few of the impacted victims, with thousands affected by the scam. Furthermore, it accounts for only a small fraction of BitConnect’s value, with the platform managing to swindle $2.4 billion from investors.
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.
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