The founder of cryptocurrency exchange BitConnect illegally took more than $ 2 billion in digital money from investors in a securities sale that was not approved by federal regulators, according to a federal lawsuit filed Wednesday in New York.
The Securities and Exchange Commission said in its complaint that Satish Kumbhani and Glenn Arcaro were the main perpetrators of a “Ponzi scheme” from early 2017 to January 2018 that defrauded investors of their money. BitConnect has prompted investors to invest money in the business while promising to generate returns of up to 40% per month, according to federal regulators.
These stunning returns were a fabrication, says the SEC. Instead, according to the agency’s complaint, Kumbhani and Arcaro took 325,000 Bitcoins, valued at over $ 2 billion, and transferred them to their own digital wallets as well as unknown associates. Kumbhani, 35, of India, founded BitConnect and Arcaro, 44, of California, is the main promoter of the U.S.-based company, federal regulators said.
Kumbhani also used an unknown number of U.S. residents to promote BitConnect and paid developers for referrals, according to the government complaint.
The lawsuit, which accuses Kumbhani and Arcaro of securities fraud, comes more than three years after BitConnect was forced to shut down. The SEC sued five other BitConnect promoters earlier this year for their role in promoting the company using “testimonial” style videos on YouTube.
Although growing in popularity, digital currencies like Bitcoin have remained largely unregulated in the United States. Yet more and more companies allow payment for their services and products using cryptocurrency.
SEC officials said Kumbhani and Arcaro tried to take advantage of people gravitating around cryptocurrencies.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” Lara Mehraban, associate regional director of the SEC, said in a statement, adding that the agency “Aggressively prosecute and hold accountable those who engage in misconduct in the digital asset space.”