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BitConnect founder Satish Kumbhani has been indicted by a San Diego jury for allegedly orchestrating a global cryptocurrency Ponzi scheme that involved approximately $2.4 billion taken from investors. Kumbhani is currently at large.
The Justice Department said the 36-year-old has been charged 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.
He is facing up to 70 years in prison if convicted on all the charges.
BitConnect was a fraudulent cryptocurrency investment platform launched in 2016 that the DOJ said reached a peak market capitalization of $3.4 billion.
Kumbhani managed to convince investors to contribute to the company’s lending program, which he said involved proprietary technology called “BitConnect Trading Bot” and “Volatility Software.” Kumbhani falsely told investors that he could guarantee profits by using investor funds to trade cryptocurrency based on the volatility of the market.
After a year, Kumbhani shut down the Lending Program but figured out a way to manipulate the price of BitConnect Coin (BCC) so that it looked to still be successful. At its peak, BitConnect Coin was trading at $463.31.
BitConnect ended up simply paying the earliest investors with money taken from investors who joined later on. BitConnect closed its doors in 2018, claiming bad press, distributed denial-of-service (DDoS) attacks, and regulatory investigations as the core reasons. US regulators sent cease-and-desist letters to the lending platform due to its failure to register, and BitConnect’s operators said these demands “became a hindrance for the legal continuation of the platform.”
BCC then crashed, wiping out the value of existing investments. Kumbhani and some of his co-conspirators then performed an exit scam, taking approximately $14.5 million with them.
“This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than $2 billion,” said US Attorney Randy Grossman. “The US Attorney’s Office and our law enforcement partners are committed to pursuing justice for victims of cryptocurrency fraud.”
Both the IRS and FBI are involved in the investigation into the case.
In September, the DOJ announced that Los Angeles resident Glenn Arcaro, one of the company’s directors, pleaded guilty to the charge of conspiracy to commit wire fraud. As a director, Arcaro took a cut of every investment made through BitConnect’s lending programs. As much as 15% of each trade went into his pocket, and he eventually earned over $24 million.
The DOJ said in November that it planned to sell $56 million worth of cryptocurrency that had been seized from Arcaro.
In June, the SEC charged five alleged members of the BitConnect promoter pool, including Trevon Brown (also known as Trevon James), Craig Grant, Ryan Maasen, and Michael “Michael Crypto” Noble.
The regulator claimed that in 2017 and 2018, the five promoted and sold securities through the BitConnect lending program, which promised investors returns as high as 40%. Marketing consisted of YouTube content, social media, and “testimonials.” The promoters each earned between $475,000 and $1.3 million in commission.
US national Joshua Jeppesen was also charged as an alleged liaison between BitConnect and the platform’s promoters, earning himself a reported $2.6 million in the process.
An Australian promoter of BitConnect — John Louis Anthony Bigatton — was charged last year by the Australian Securities and Investments Commission (ASIC). Divyesh Darji, another core promoter, was arrested by the Gujarat Criminal Investigation Department (CID) after arriving in Dubai on his way from Ahmedabad.
“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars,” said IRS Special Agent in Charge Ryan Korner.
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