A grand jury has indicted the founder Bitconnect, Satish Kumbhani for an elaborate ponzi fraud. The federal grand jury issued the indictment on Friday consequent upon a suit filed by the Securities and Exchange Commission (SEC) against Kumbhani last September.
According to the filings by the Department of Justice (DoJ), the Bitconnect founder was accused of being the brain behind an elaborate ponzi scheme that defrauded investors of $2.4 billion.
US Assets Seizure from Bitconnect
Kumbhani, 36, is an Indian from Hemal. He was indicted with a co-conspirator, Arcaro, who is also the main promoter of the scheme in the United States. Arcaro has already admitted his guilt last September. This was after federal agents seized $57 million worth of digital assets from him, with a court ruling that stated that investors would benefit from the assets after liquidation.
The indictment documents stated that Bitconnect deceived investors by creating the impression that the scam was a proof-of-stake cryptocurrency investment that enabled them to earn daily interests by locking up their investments in their Bitcoinnect accounts, while in reality, what the company did was pay older investors with the funds brought in by new ones.
Violation of The Anti-Fraud And Securities Law
The program also took advantage of the volatility of the cryptocurrency market to incorporate a “lending program” while convincing the investors that earnings were triggered by its Bitconnect trading software robot technology and a volatility software.
According to the charge brought against the company by the SEC, the operators of the scheme violated the federal anti-fraud and registration provision of the securities law. If convicted, the Bitconnect founder could face up to 70 years prison term for the offense.
A special agent in charge of the FBI’s Cleaveland office, Eric Smith said that the indictment is a demonstration of the agency’s commitment to identify the bad actors in the emerging cryptocurrency space with the view to addressing the issues that sully the image of the legitimate players in the industry.
Fraudsters Utilizing Complex Schemes
Another federal investigator familiar with the case is Ryan Korner of the Los Angeles IRS Criminal Investigation Office. According to Korner,
“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars.”
As crypto assets continue to grow in popularity, the SEC and DoJ are keenly monitoring activities in the space. This could be seen from several seizures of illicit funds and indictments such as the BitMex case. BitMex co-founders, Delo and Hayes were accused of violation of the US Bank Secrecy Act but reached a compromise with the authorities through a plea bargain. Delo and Hayes were handed hefty fines of $10 million being the penalty for gains made through the offense.
BlockFi, another crypto company, was fined $100 million by the SEC in an out-of-court settlement for an offense. A February 26 update by the commission said that the settlement was consequent upon the company’s failure to register its crypto lending service with the agency.
