The United States has indicted the founder of open-source cryptocurrency BitConnect for allegedly orchestrating a multi-billion-dollar global Ponzi scheme.
An indictment, returned by a federal grand jury in San Diego on Friday, charges Satish Kumbhani, 36, of Hemal, India, with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business and conspiracy to commit international money laundering.
Court documents allege that Kumbhani and his co-conspirators misled investors about BitConnect’s Lending Program and purported proprietary technology.
Investors were allegedly deceived into believing that BitConnect’s Trading Bot and Volatility Software could generate substantial profits and guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
As alleged in the indictment, however, BitConnect operated as a Ponzi scheme, paying off early investors in the company with funds invested by subsequent investors.
Kumbhani and his co-conspirators allegedly deployed this ruse to obtain approximately $2.4bn from investors.
The Lending Program was abruptly shuttered by Kumbhani after a year. He then allegedly instructed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency –BitConnect Coin (BCC) – to create the false appearance of genuine market demand for the cryptocurrency.
“Kumbhani and his co-conspirators also concealed the location and control of the fraud proceeds obtained from investors by commingling, cycling and exchanging the funds through BitConnect’s cluster of cryptocurrency wallets and various internationally based cryptocurrency exchanges,” said the Department of Justice.
BitConnect’s founder is further accused of evading regulatory scrutiny by not registering BitConnect with FinCEN.
In September 2021, director and promoter of BitConnect, Glenn Arcaro, 44, of Los Angeles, pleaded guilty to participating in a fraudulent cryptocurrency investment scheme involving BitConnect.
Arcaro admitted heading a large network of promoters in North America in a pyramid scheme known as the BitConnect Referral Program. The fraudster earned at least $24m by taking 15% from every investment into the BitConnect Learning Program and receiving portions of all investments from a hidden “slush” fund.
In November 2021, US authorities seized cryptocurrency valued at $57m from Arcaro. Money raised from liquidating the funds will go to victims of the BitConnect fraud.