An Indian founder of cryptocurrency investment platform BitConnect has been indicted in the US for orchestrating a global Ponzi scheme that defrauded investors of more than USD 2 billion.
Satish Kumbhani (36) of Hemal in Gujarat misled investors about BitConnect’s “Lending Program.”
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The Fraud
Under the “Lending Program”, Kumbhani and his co-conspirators falsely promised returns based on BitConnect’s phony “Volatility Software” that tracked cryptocurrency exchange markets.
They assured returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
BitConnect operated as a Ponzi scheme which paid earlier BitConnect investors with money from later investors.
In total the perpetrators swindled about USD 2.4 billion from investors.
What He Did After
After operating for about a year, Kumbhani abruptly shut down the “Lending Program”.
He then directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency, BitConnect Coin (BCC), to create the false appearance of legitimate market demand for it.
He 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.
Running An Illegitimate Business
He evaded US regulations, the Bank Secrecy Act in particular which is enforced by the Financial Crimes Enforcement Network (FinCEN).
Although BitConnect operated a money transmitting business, it never registered with FinCEN, as required under the Bank Secrecy Act, making it an unlicensed business.
Charges
He is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
If convicted of all counts, he faces a maximum total penalty of 70 years in prison but will likely get far less.
A federal district court judge will determine the sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
Four-Year Case History
Kumbhani is at large.
BitConnect collapsed in dramatic fashion in 2018, shutting down its exchange and lending platforms within a week after receiving cease-and-desist orders from U.S. state regulators.
Since then, regulators in the U.S and other nations have arrested or sought information from a number of BitConnect promoters.