A San Diego federal grand jury returned an indictment on Friday accusing the BitConnect founder of orchestrating a global Ponzi scheme. BitConnect is an alleged fraudulent cryptocurrency investment platform that has reached a peak market capitalization of $3.4 billion.
In January 2018, after being accused of running a Ponzi scheme on several occasions, BitConnect’s development team announced that it would shut down its lending service and exchange service.
The company’s lending service allowed users to lend their cryptocurrency in exchange for returns dependent on the amount they were willing to lend and the repayment term. Of course, users were not able to lend dollars or convert their dollars directly into BCC tokens. To participate, users had to buy a bitcoin token and then convert their bitcoin to BCC, which could then be loaned out. The fact that BCC was the only cryptocurrency that could be lent, and that all interest and redemption principal was paid in BCC, naturally helped boost the value of BitConnect’s token.
According to a chart posted on BitConnect’s lending site, its volatile soft interest promised returns of up to 40% per month, with loans above $1010, and daily interest of 0.1%, 0.2% or 0. , 25% depending on the amount of the loan. For example, a person lending $10,010 in BCC would earn up to 40% per month in interest due to the software’s volatility, 0.25% per day, and would regain their initial interest contribution after just 120 days.
To boost its business, BitConnect had also implemented a tiered referral bonus program.
The commission pyramid promised by BitConnect
But that just helped raise suspicions, don’t we say too good to be true? Critics of the platform included cryptocurrency and blockchain technology experts like Vitalik Buterin, founder of Ethereum, and Charlie Lee, founder of Litecoin, who felt it was a Ponzi scheme (a scheme by which most investors old are remunerated by the capital committed by new investors). Not to mention the individuals who shouted scam.
Also, the eating stopped. In a blog post titled Changes Coming to the Bitconnect System – Halting the Lending and Exchange Platform, the team took many investors by surprise by announcing in January 2018 that it would be shut down.
In its official announcement to cease operations, BitConnect identifies three separate reasons.
- First, the BitConnect team blamed bad press, which made community members uncomfortable and created a lack of trust in the platform. In particular, the team was referring to everyone who shouted the Ponzi scheme.
- Then, BitConnect had received not one, but two cease and desist letters. The first came from the Texas State Securities Board, and the second from the Securities Division of the North Carolina Secretary of State. The team noted that these cease and desist letters were a legal hurdle that made operating the platform a challenge going forward.
- Finally, the team reported a series of denial of service (DDoS) attacks on the platform, and suggested that they were likely to continue. The disruptions caused by these DDoS attacks made the platform unstable and created panic and concern within the community.
Indictment of the founder
According to court documents, Satish Kumbhani, 36, of Hemal, India, the founder of BitConnect, misled investors about BitConnect’s loan program. As part of this program, Kumbhani and his co-conspirators touted BitConnect’s alleged proprietary technology, known as BitConnect Trading Bot and Volatility Software, as capable of generating substantial profits and guaranteed returns using the money from investors to trade on the volatility of cryptocurrency exchange markets. As alleged in the indictment, however, BitConnect operated as a Ponzi scheme by paying early BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators secured around $2.4 billion from investors.
The indictment further alleges that after operating for about a year, Kumbhani abruptly terminated the loan program. Kumbhani then ordered his network of promoters to fraudulently manipulate and support the price of BitConnect’s digital currency, a commodity known as BitConnect Coin (BCC), in order to create the false appearance of legitimate market demand for BCC. Kumbhani and his co-conspirators also concealed the location and control of fraud proceeds obtained from investors by mixing, cycling and exchanging funds through BitConnect’s group of cryptocurrency wallets and various international currency exchanges. cryptocurrency.
According to the indictment, to avoid regulatory scrutiny and scrutiny of BitConnect’s cryptocurrency offering, Kumbhani evaded U.S. regulations governing the financial industry, including those enforced by the Financial Crimes Enforcement Network ( FinCEN). For example, although BitConnect operated a money transfer business through its digital currency exchange, BitConnect never registered with FinCEN, as required by bank secrecy law.
“Crime, especially crime involving digital currencies, continues to transcend international borders,” said Assistant Attorney General Kenneth A. Polite Jr., of the Department of Justice’s Criminal Division. The department is committed to protecting victims, preserving market integrity, and strengthening its global partnerships to hold accountable criminals who engage in cryptocurrency fraud. We thank our partners around the world for their continued efforts.
This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than $2 billion, said U.S. Attorney Randy Grossman of the Southern District of California. The U.S. Attorney’s Office and our law enforcement partners are committed to prosecuting victims of cryptocurrency fraud.
Today’s indictment reiterates the FBI’s commitment to identify and deal with malicious actors who deceive investors and impede the ability of legitimate entrepreneurs to innovate in the emerging cryptocurrency space. Special Agent in Charge Eric B. Smith of the FBI Cleveland Field Office. Dressing up a tried and true fraud scheme with a new twist and basing it overseas will not deter the FBI’s determination and dedication to thoroughly investigate and bring these fraudsters to justice.
As cryptocurrency grows in popularity and attracts investors from around the world, alleged fraudsters like Kumbhani are using increasingly complex schemes to defraud investors, often stealing millions of dollars, the special agent in charge said. Ryan L. Korner of the IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office. However, make no mistake, our agency will continue its long tradition of tracking money, whether physical or digital, to expose criminal schemes and hold fraudsters accountable for their illegal acts of deception and deception.
Kumbhani is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to manipulate commodity prices, operating an unlicensed money transfer business and conspiracy to commit international money laundering. If convicted on all counts, he faces a maximum aggregate sentence of 70 years in prison. A federal district court judge will determine any sentence after considering US sentencing guidelines and other statutory factors. Kumbhani is on the run.
The FBI Cleveland Field Office and IRS-CI are investigating the case.
Trial Attorney Kevin Lowell of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Daniel Silva, Mark W. Pletcher, Carl Brooker and Lisa Sanniti of the Southern District of California are prosecuting the case. The Department of Justice’s Office of International Affairs provided essential assistance to the investigation.
Source : Justice Ministry
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