The US Securities and Exchange Commission (SEC) filed charges against BitConnect and its founder Satish Kumbhani, as well as a US-based promoter, Glenn Arcaro, alleging fraud against the crypto lending company.
The SEC accused BitConnect, a global operation that used a network of commission-based promoters to sell $2bn worth of its native cryptocurrency token to retail investors, of being a Ponzi scheme, it what might be one of the biggest scams ever involving cryptocurrencies. Investors were promised up to 40% return on their investment, which BitConnect promised to generate using a non-existent “volatility software trading bot.”
Instead of investing client funds, the SEC alleges that BitConnect and Kumbhani “siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the US, defendant Glenn Arcaro, and others.”
The SEC also alleged that Arcaro and his firm Future Money Ltd fraudulently received more than $24m in “referral commissions” and other sums as BitConnect’s top US promoter. Arcaro pleaded guilty to a related criminal wire fraud conspiracy charge before US Magistrate Judge Mitchell Dembin in San Diego.
Several other BitConnect promoters have already faced civil lawsuits from the SEC for receiving millions in commission for their role in the alleged fraud.
The SEC sued five other BitConnect promoters on May 28. It obtained judgments requiring two promoters, Michael Noble and Joshua Jeppesen, and Jeppesen’s fiancee to pay more than $3.5m and 190 bitcoin. The other promoters have not responded to the lawsuit or have not been served.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC’s New York Regional Office. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
Kumbhani and Arcaro had not, until today, been charged for their relationship to BitConnect’s alleged scam.
BitConnect operated between 2016 and 2018, shutting down after receiving cease-and-desist orders from state regulators, including Texas and North Carolina. At the time, the letters alleged BitConnect was violating state securities laws.
In recent weeks, SEC chair Gary Gensler has expressed the agency’s goal of regulating DeFi platforms and has called for more regulation of crypto in general.
The SEC has also settled with several other crypto businesses in recent months, including Poloniex, Coinschedule, Loci, and LBRY. Additionally, the SEC is locked in an ongoing case with XRP issuer Ripple, which aims to beat the regulator in court. Charges against those targets range from outright fraud to lesser charges of unregistered securities activity.
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