SEC Sues BitConnect and Founder for Alleged $2B Fraud
- BitConnect’s founder Satish Kumbhani was charged with conducting a $2 billion security fraud.
- The SEC also charged a BitConnect promoter, who recently pled guilty for stealing $24 million from investors.
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The U.S. Securities and Exchange Commission has filed charges against BitConnect, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company. According to the official filing from 1 September, the SEC alleges that they defrauded investors out of at least $2 billion between 2017 and 2018 by running a global fraudulent organization.
The SEC complaint alleges the company conducted a fraudulent and unregistered offering and sale of securities in the form of a “lending program.” Kumbhani and other BitConnect promoters falsely claimed that investing in BitConnect Coins would generate monthly returns as high as 40% thanks to the company’s proprietary “volatility software trading bot.” However, instead of deploying investor funds for trading with the bot, Kumbhani and others siphoned the investments off for their own benefits.
Glenn Arcaro, BitConnect’s top promoter in the U.S., transferred the stolen funds to various wallets owned by his companies. Arcaro was also the creator and owner of a website called “Future Money” used to lure investors into BitConnect’s lending program.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC’s New York Regional Office. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
In a parallel investigation, the U.S. Department of Justice announced that Arcaro had pled guilty in federal court for conspiring to mislead investors about BitConnect’s proprietary technology. He admitted that BitConnect operated a textbook Ponzi scheme by paying earlier BitConnect investors with money from new investors coming into the project. He also admitted to earning $24 million from the fraud, which he must repay to investors.
- During an interview with FT, CEO Brian Armstrong said that before the lawsuit a SEC staff member had said that all crypto except BTC was security, and should be delisted.
- When asked how he came to that conclusion, the SEC staff member reportedly said “we’re not going to explain it to you, you need to delist every asset other that Bitcoin”.
Coinbase CEO Brian Armstrong appears on stage at the 2014 TechCrunch Disrupt Europe/London, at The Old Billingsgate on October 21, 2014 in London, England. Anthony Harvey/Getty Images for TechCrunch
- A federal judge ruled that the sale of XRP through exchanges and algorithms did not qualify as selling securities, which could have a major impact on several SEC lawsuits.
- The institutional sale of the token, however, did violate federal securities laws, and the lawsuit between the SEC and Ripple will have to go to trial.
- Binance had filed a complaint against a 17 June SEC press release, claiming that the regulator had made “misleading” statements that could have tainted the jury pool.
- The presiding judge rejected the complaint by saying that it was not the court’s mandate to “wordsmith” public statements, and that it was not clear if the statements had any effect on the case.