The founder of cryptocurrency exchange platform BitConnect illegally took more than $2 billion in digital money from investors in a securities sale that wasn’t approved by federal regulators, a federal lawsuit filed Wednesday in New York alleges.
The Securities and Exchange Commission said in its complaint that Satish Kumbhani and Glenn Arcaro were the main perpetrators in a “Ponzi-like” scheme from early 2017 through January 2018 that defrauded investors of their money. BitConnect enticed investors into pouring money into the company while promising to generate returns of as much as 40% a month, federal regulators allege.
Those eye-popping returns were a fabrication, the SEC claims. According to the agency’s complaint, Kumbhani and Arcaro instead took 325,000 Bitcoin, valued at more than $2 billion, and transferred it into their own digital wallets as well as to unknown associates. Kumbhani, 35, of India, founded BitConnect and Arcaro, 44, of California, is the company’s top U.S.-based promoter, federal regulators said.
Kumbhani also used an unknown number of U.S. residents to promote BitConnect and paid the promoters for referrals, according to the government’s 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 it is growing in popularity, digital currencies like Bitcoin have been left largely unregulated in the U.S. Still, more companies are allowing their services and products to be paid for using cryptocurrency.
SEC officials said Kumbhani and Arcaro tried to take advantage of people gravitating toward cryptocurrencies.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” SEC Associate Regional Director Lara Mehraban said in a statement, adding that the agency will “aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”