SEC Hits BitConnect Founders, Promoters with Fresh Fraud Wrap 101
Source: iStock/Pgiam

The US Securities and Exchange Commission (SEC) has dredged up the ghost of the discredited crypto scam BitConnect, and will look to prosecute its alleged masterminds for selling fraudulent and unregistered securities – amounting to a total of USD 2bn.

The SEC issued a notice explaining that it had “filed an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top US promoter [Glen Arcaro] and his affiliated company” Future Money. The scam promised returns for those exchanging their bitcoin (BTC) holdings for the BitConnect coin, whose value shrank 92% in early 2018.

Lara Shalov Mehraban, the Associate Regional Director of the SEC’s New York Regional Office, was quoted as stating:

“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets. We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”

The SEC explained that the firms involved allegedly promised to use “investors’ deposits,” to “generate exorbitantly high returns.” The SEC added that it was alleging that “instead of deploying investor funds for trading” using a “trading bot,” the parties instead “siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them.”

On Reddit, some were incredulous, with one writing:

“Bitconnect shut down in 2018. WTF has the SEC been doing for three years?”

Elsewhere, others wrote of how they had been “burned” by BitConnect during the firm’s 2016-2017 heyday.

Arcaro is already facing possible jail time in the USA after he “pleaded guilty on Wednesday to a related criminal wire fraud conspiracy charge,” Reuters reported. Both he and Future Money have been accused of raking in over USD 24m in “referral commissions and other sums” by acting as a promoter for BitConnect. He is due to be sentenced in mid-November.

The prosecution in the case called BitConnect a “textbook Ponzi scheme” that had sought to pay early investors with new investors’ funds.

Tracking down Kumbhani will be much harder, as the founder’s whereabouts are currently “unknown,” Reuters added.

The scam is thought to have accrued BTC 325,000, which was worth some USD 2bn at the time of the scam, but would be worth closer to USD 15bn in today’s market.

In June, the SEC pressed for a settlement in a separate case involving a group of BitConnect promoters, whom it had accused of taking millions in commission and pay in exchange for promoting BitConnect offerings.
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