BitConnect’s Indian-Origin Founder Indicted in US for Running $2.4-Billion Global Ponzi Scheme

BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors.

By Shomik Sen Bhattacharjee | Updated: 28 February 2022 16:31 IST

BitConnect’s Indian-Origin Founder Indicted in US for Running $2.4-Billion Global Ponzi Scheme

Photo Credit: Unsplash/ Michael Förtsch

Kumbhani and his co-conspirators obtained approximately $2.4 billion from investors

Highlights

BitConnect reached a peak market capitalisation of $3.4 billion
Investors were promised "substantial profits and guaranteed returns"
If convicted, a penalty of 70 years in jail could be sentenced

The US Department of Justice has indicted Satish Kumbhani, the founder of defunct cryptocurrency platform BitConnect, for “orchestrating” a global crypto Ponzi scheme worth $2.4 billion (roughly Rs. 18,110 crore). Kumbhani, 36, has also been charged with conspiracy to commit wire fraud and price manipulation as well as operation of an unlicenced money transmitting business and conspiracy to commit international money laundering. If convicted on all counts, Kumbhani could face a maximum penalty of 70 years in prison.

The Indian-origin founder reportedly duped people into investing in his fraudulent cryptocurrency platform that promised too good to be true returns. According to court documents, the 36-year old mastermind reportedly misled investors about the platform's supposed proprietary technology – BitConnect Trading Bot and Volatility Software.

Kumbhani reportedly touted these software suites as being able to generate substantial profits by trading on the volatility of cryptocurrency exchange markets.

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Attorney for the Southern District of California Randy Grossman said, “This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than $2 billion (roughly Rs. 15,000 crore). The US Attorney's Office and our law enforcement partners are committed to pursuing justice for victims of cryptocurrency fraud.”

BitConnect essentially used money from new investors to pay earlier ones and also operated as an unlicensed money transmitting business. This was confirmed by US officials in an indictment order posted online.

At the height of its fame, BitConnect reached a peak market capitalisation of $3.4 billion (roughly Rs. 25,660 crore). But, the threads started unravelling in 2018. The company closed its exchange in January that very year after receiving cease-and-desist letters from regulators in Texas and North Carolina.

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The global repercussions were fast, with South Korean investors becoming "paranoid" and one promoter informing Kumbhani that people were discussing suicide in chat rooms, the indictment stated.

The US Securities and Exchange Commission filed charges against Kumbhani on September 1 2018 for securing more than $2 billion (roughly Rs. 15,000 crore) in an unregistered offering. Glenn Arcaro, BitConnect's main promoter in North America, pleaded guilty that day.

“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilising increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars,” said Special Agent-in-Charge Ryan L. Korner of the IRS Criminal Investigation's (IRS-CI) Los Angeles Field Office.

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“However, make no mistake, our agency will continue our long tradition of following the money, whether physical or digital, to expose criminal schemes and hold the fraudsters accountable for their illegal acts of trickery and deceit,” he added.

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