According to the Justice Department report, a federal grand jury in San Diego indicted the cryptocurrency investment platform BitConnect’s founder Satish Kumbhani for allegedly orchestrating and defrauding global investors of a $2.4 billion global Ponzi scheme.
In Brief:
- Through the ‘Lending Program’ BitConnect made investments with the help of ‘Trading Bot’ and ‘Volatility Software’ and stole about $2.4B.
- Kumbhani is alleged to violate the US BSA and FinCEN regulations.
- Further, the allegations include concealing the location & control of fraud, carrying out a ponzi scheme.
Satish Kumbhani, an Indian citizen and resident, is charged with multiple conspiracy counts involving wire fraud, money laundering, and commodities fraud, as well as one count of operating an unlicensed money transmitting business. If convicted on all counts, he could face a total sentence of 70 years in prison. His whereabouts are unknown.
Investors around the globe were urged to purchase BitConnect’s open-source, decentralized cryptocurrency, known as Bitconnect Coin (BCC). Then they’d lend their BCC tokens to Bitconnect through a “Lending Program”.
BitConnect would “purportedly” invest the proceeds through proprietary technology known as the ‘Trading Bot’ and’ Volatility Software’. The technology was basically created to trade automatically and profitably.
Prosecutors claim that the investments were not traded as promised and were instead used to pay out previous investors. A typical Ponzi Scheme. Meanwhile, BitConnect reached a peak market capitalization of $3.4 billion. Kumbhani and his co-conspirators allegedly received about $2.4 billion from investors.
BitConnect has attracted the attention of the regulators of Texas and North Carolina from the beginning of 2018, pushing Kumbhani to announce days after closing the Lending Program within a year of its inception. But, he then directed his network of promoters to fraudulently manipulate and support the price of BCC, to create the false appearance of legitimate market demand for the coin.
“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors,” said Ryan Korner, special agent in charge of the IRS Criminal Investigation’s office in Los Angeles.
Kumbhani was also alleged to violate financial industry regulations in the United States, including those imposed by the US Financial Crimes Enforcement Network (FinCEN). Despite BitConnect exchanging money, it never registered with FinCEN, as required by the US Bank Secrecy Act.
“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,” alleged DOJ.
Last year, the Justice Department announced that it was selling $56 million worth of cryptocurrency seized by the Bitconnect scheme to pay Bitconnect fraud victims, considered to be the largest cryptocurrency fraud ever criminally charged.
Earlier this week, BitMEX founders pleaded guilty to violating the US Bank Secrecy Act (BSA) after which they agreed to pay a separate $10 million criminal fine for the offense’s monetary gain, pending the sentencing judgment.
