A federal grand jury in San Diego charged the founder of a cryptocurrency startup Friday in a broad indictment that claims he cheated investors of more than $2.4 billion in a Ponzi scam.
Prosecutors say the fraud is the largest of its sort ever prosecuted criminally.
Satish Kumbhani, 36, of Hemal in Gujarat, India, swindled investors regarding BitConnect’s “Lending Program,” according to court filings.
Based on the indictment, Kumbhani founded BitConnect in 2016 as a “classic Ponzi scam.” he US Department of Justice said the exchange reached a peak market valuation of $3.4 billion.
Prosecutors allege that BitConnect’s proprietary technology made misleading promises about returns based on phony “volatility software” that monitored bitcoin exchange markets.
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Another Major Ponzi Scam
According to court filings, the program was allegedly created to trade automatically and successfully by buying and selling Bitcoin’s volatility.
However, a large portion of the technology remained unknown to investors. When someone requested a demo at a 2017 event, Kumbhani was evasive:
“So you’re asking me a pretty difficult question,” he explained to one journalist. Later, as described by the Los Angeles Times, he stated, “We are not sharing anything for privacy concerns.”
BitConnect halted operations in January 2018 after receiving cease-and-desist letters from North Carolina and Texas state regulators.
Total crypto market cap at $1.766 trillion in the daily chart | Source: TradingView.com
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The global repercussions was fast, with South Korean investors becoming “paranoid” and one promoter informing Kumbhani that people were discussing suicide in chat rooms, the indictment stated.
The US Securities and Exchange Commission filed charges against Kumbhani on September 1 for securing more than $2 billion in an unregistered offering.
Glenn Arcaro, BitConnect’s main promoter in North America, pleaded guilty that day.
Long Prison Time
Kumbhani is facing charges for conspiracy to commit price manipulation and wire fraud, as well as operating an unregulated money transfer business and conspiracy to launder money in foreign shores.
Kumbhani also violated US financial industry regulations, including those imposed by the US Financial Crimes Enforcement Network.
For instance, despite the fact that BitConnect transacted money through its digital currency exchange, BitConnect never registered with FinCEN, as required by the US Bank Secrecy Act.
As bitcoin grows in popularity and encouraging foreign investors from all over the world, “alleged fraudsters like Kumbhani are deploying increasingly complicated methods to deceive investors,” Ryan Korner, special agent in charge of the IRS Criminal Investigation Office in Los Angeles, disclosed.
Kumbhani, who is still at large, faces a maximum sentence of 70 years behind bars if convicted on all charges.
Featured image by BeInCrypto, chart from TradingView.com