NEW YORK (REUTERS) – The top US securities regulator on Wednesday (Sept 1) sued the founder of the now-defunct cryptocurrency exchange platform BitConnect over his alleged role in fraudulently raising about US$2 billion (S$2.69 billion) from thousands of retail investors.
Expanding a civil case announced in May, the US Securities and Exchange Commission (SEC) charged BitConnect founder Satish Kumbhani, an Indian citizen, with lying about BitConnect’s ability to generate profits, and violating registration laws meant to protect investors.
In a lawsuit in Manhattan federal court, the SEC also charged promoter Glenn Arcaro and his firm Future Money Ltd with fraudulently receiving more than US$24 million in “referral commissions” and other sums as BitConnect’s top US promoter.
Arcaro pleaded guilty on Wednesday to a related criminal wire fraud conspiracy charge before US Magistrate Judge Mitchell Dembin in San Diego. His sentencing is Nov 15.
The SEC lawsuit seeks to impose fines, recoup ill-gotten gains, and other relief.
Founded in 2016, BitConnect created a digital token called BitConnect Coin that could be exchanged for Bitcoin, the popular cryptocurrency.
The SEC said investors in a BitConnect “lending programme” were told BitConnect used a “volatility software trading bot”that could generate returns of 40 per cent per month, and were given fictitious returns showing 3,700 per cent annualized gains.
But the regulator said investors lost much of their money after the price of BitConnect Coin sank 92 per cent on Jan 16, 2018.
Prosecutors said BitConnect ran a “textbook Ponzi scheme” by paying earlier investors with new investor money.
Kumbhani, 35, has lived in Surat, India but his whereabouts are unknown, while Arcaro, 44, lives in Los Angeles and incorporated Future Money in Hong Kong, authorities said.
Efforts to locate Kumbhani were unsuccessful. Arcaro’s lawyer did not respond to requests for comment.
The SEC sued five other BitConnect promoters on May 28.
It has obtained judgments requiring two promoters, Michael Noble and Joshua Jeppesen, and Mr Jeppesen’s fiancee to pay more than US$3.5 million and 190 bitcoin. The other promoters have not responded to the lawsuit or not been served.
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