The founder of the now-defunct cryptocurrency exchange platform BitConnect has been sued by the US Securities and Exchange Commission for allegedly defrauding thousands of retail investors out of about $2 billion (A$2.7 billion).
The US Securities and Exchange Commission charged BitConnect creator Satish Kumbhani, an Indian citizen, with lying about BitConnect’s potential to make profits and breaking registration regulations meant to safeguard investors, expanding on a civil action announced in May.
The SEC also charged promoter Glenn Arcaro and his firm Future Money Ltd with earning more than US$24 million in “referral commissions” and other payments as BitConnect’s top US promotion in a lawsuit filed in federal court in Manhattan.
Arcaro pled guilty before US Magistrate Judge Mitchell Dembin in San Diego on Wednesday to a related felony wire fraud conspiracy charge. On November 15, he will be sentenced.
Fines, recoupment of ill-gotten income, and other relief are sought in the SEC lawsuit.
BitConnect was founded in 2016 and launched BitConnect Coin, a digital token that could be exchanged for bitcoin, the popular cryptocurrency.
According to the SEC, investors in a BitConnect “loan programme” were informed BitConnect used a “volatility software trading bot” that could create 40 percent monthly returns and were shown false returns indicating 3700 percent annualised gains.
However, the regulator stated that investors lost a significant amount of money as the price of BitConnect Coin plummeted by 92 percent on January 16, 2018.
Prosecutors claimed BitConnect engaged in a “classic Ponzi scheme” by repaying previous investors with money from new investors.
Authorities said Kumbhani, 35, lived in Surat, India, but his whereabouts are unknown, while Arcaro, 44, lives in Los Angeles and founded Future Money in Hong Kong.
The search for Kumbhani was fruitless. Requests for response from Arcaro’s lawyer were not returned.
On May 28, the SEC filed a lawsuit against five more BitConnect promoters.
It has won judgments ordering Michael Noble and Joshua Jeppesen, as well as Jeppesen’s fiancee, to pay over US$3.5 million and 190 bitcoins.
The other promoters have either not reacted or have not been served with the lawsuit.