BitConnect founder indicted over $2.4B Ponzi scheme, faces 70 years in prison

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A federal grand jury in San Diego has indicted the founder of one of the largest scams in the digital currency space, charging him with wire fraud, conspiracy to commit commodity price manipulation, and international money laundering. Satish Kumbhani, the founder of digital asset mega scam BitConnect, faces up to 70 years behind bars if convicted of all the charges.

The San Diego court claimed in its indictment that Kumbhani misled investors about BitConnect’s Lending Program. Under this program, the 36-year-old and his cronies allegedly told investors that they could generate guaranteed returns by using their investment funds to trade on the volatility of the digital asset markets, authorities said. They touted the ‘BitConnect Trading Bot’ and its proprietary ‘Volatility Software’ as being able to generate guaranteed returns.

The project collapsed in early 2018, and it was outed as a massive Ponzi scheme in which Kumbhani and his co-conspirators used later investors’ money to pay off the early investors. They were able to raise $2.4 billion from investors before the project sank, according to investigators.

The indictment further alleges that after shutting down the Lending Program, Kumbhani directed his network of promoters to artificially and fraudulently manipulate and prop up the price of the BitConnect Coin (BCC), the project’s native token. This gave the impression that the token was in high demand and increased its price. 

To cover their tracks, the BitConnect leaders allegedly comingled and exchanged users’ funds through their cluster of digital currency wallets, concealing the location and control of the funds.

Throughout the length of their operation, the BitConnect operators were aware but willfully ignored all the relevant regulations, authorities said. These include operating a money transmitting business through its exchange without registering with the Financial Crimes Enforcement Network (FinCEN), which violates the Bank Secrecy Act.

In his comments, Eric Smith, the Special Agent in Charge of FBI’s Cleveland Field Office, warned digital asset scammers that the FBI would pursue criminals who turn to digital assets to conceal their schemes.

“Dressing up a tried and true fraud scheme with a new twist and basing it overseas will not deter the resolve and dedication of the FBI to meticulously investigate and bring such fraudsters to justice.”

The IRS, the Justice Department’s Criminal Division, and the Southern District of California’s Attorney’s office all shot a warning to digital asset scammers as well, reminding them that the industry isn’t beyond the scope of the law.

The indictment charges Kumbhani with wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodity price manipulation, conspiracy to commit international money laundering, and operating an unlicensed money transmitting business. Kumbhani, from Hemal in India, could spend up to 70 years behind bars if convicted of all the charges.

As CoinGeek recently reported, the 11th Circuit Court of Appeals recently sided with victims of BitConnect, giving them the green light to pursue a class-action lawsuit against the project’s promoters. The Southern District of Florida had tossed the lawsuit after the promoters had argued that the Securities Act of 1933 doesn’t encompass solicitation conducted through online mass media means.

In its ruling, the appellate court pointed out that the Act doesn’t impose a limitation on the means of solicitation, nor does any precedent ever set in the court. 

“Because the Securities Act provides no free pass for online solicitations, we reverse the district court’s dismissal of the section 12 claim,” Judge Britt Grant ruled.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, 
FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.