The top US securities regulator sued the founder of the now-defunct cryptocurrency exchange platform BitConnect over his alleged role in fraudulently raising about $2 billion (roughly Rs. 14,600 crores) from thousands of retail investors.
Expanding a civil case announced in May, the US Securities and Exchange Commission 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 with fraudulently receiving more than $24 million (roughly Rs. 175 crores) 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 November 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. Bitcoin price in India stood at Rs. 37.8 lakhs as of 12pm IST on September 2.
The SEC said investors in a BitConnect “lending programme” were told BitConnect used a “volatility software trading bot” that could generate returns of 40 percent per month, and were given fictitious returns showing 3,700 percent annualised gains.
But the regulator said investors lost much of their money after the price of BitConnect Coin sank 92 percent on January 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 Jeppesen’s fiancee to pay more than $3.5 million (roughly Rs. 25 crores) and BTC 190. The other promoters have not responded to the lawsuit or not been served.