The founder of cryptocurrency investment platform BitConnect, an Indian national, has been indicted on charges of orchestrating a global Ponzi scheme worth USD 2.4 billion, federal prosecutors said.
According to court documents, Satish Kumbhani (36) of Hemal in Gujarat misled investors about BitConnect’s “Lending Program.” BitConnect reached a peak market capitalisation of USD 3.4 billion, the Department of Justice said.
“This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than USD 2 billion,” U.S. Attorney Randy Grossman for the Southern District of California said on Friday.
Kumbhani is charged with conspiracy to commit wire fraud and 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.
Under the “Lending Program”, Kumbhani, who is at large, and his co-conspirators touted BitConnect’s purported proprietary technology, “BitConnect Trading Bot” and “Volatility Software”, as being able to generate substantial profits. They guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
As alleged in the indictment, BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators obtained approximately USD 2.4 billion from investors.
The indictment, which was returned by a federal grand jury in San Diego, alleges that after operating for approximately one 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.
Kumbhani 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, the Department of Justice alleged.Kumbhani further evaded US regulations governing the financial industry, including those enforced by the Financial Crimes Enforcement Network (FinCEN). For example, although BitConnect operated a money transmitting business through its digital currency exchange, BitConnect never registered with FinCEN, as required under the Bank Secrecy Act.