Podcast | Editor's pick of the day - The story behind Raj Kundra's interrogation

Why Was Raj Kundra Summoned by the ED?

Raj Kundra, one-time co-owner of IPL team Rajasthan Royals and now forever banned from cricket, is in the news yet again, and yet again, it is not for the most savoury of reasons. On Tuesday, that is yesterday, 5th of June, the Enforcement Directorate interrogated Kundra for over ten hours as a “witness” in connection with a money-laundering probe involving Bitcoin transactions amounting to more than 2000 crore rupees.

Bitcoin and other cryptocurrencies, let us remind you, are not legal tender in India and are not recognised as a medium of exchange – something Finance Minister Arun Jaitley reiterated in the annual budget. Kundra was being interrogated for his alleged dealings with Amit Bhardwaj, who was arrested two months ago in Delhi and is known for being a kingpin of sorts in the cryptocurrency market in India and overseas. But more on Amit Bhardwaj in just a bit.

A source at the ED told Moneycontrol, “We suspect certain Bitcoin transactions between the main accused Amit Bhardwaj and Raj Kundra. And we are investigating Kundra to ascertain if he has gained anything from it. Raj Kundra and Amit Bhardwaj might have some links in Hash mining for Bitcoin in China.”

After emerging from the ED, Kundra spoke to the press and shared a few details about his association with Bhardwaj. Kundra who runs a poker league said, “ED called me as a witness. There’s an Amit Bhardwaj, who’s involved in some scam. He had purchased a poker team from our poker league but didn’t make payment so we expelled his team. I’ve given my statement.”

Kundra also said that Bhardwaj wanted to pay for the poker team in Bitcoin, which was not accepted, and his team was eventually expelled.  “We thought he was a respectable person so we allotted him a team. His contract was terminated after he failed to make the payments,” he said.

Perhaps because of the Bollywood connection, or perhaps because nefarious dealings have once touched him in the past, the media have been going at this story with the expected enthusiasm. Kundra, however, is not amused.

“Genuinely upset by the irresponsible journalism in India! You make scandals out of the smallest story without checking facts! Takes years to build reputations and you shake them up in minutes! Again I reiterate I was called as a witness today and have done the needful!” he wrote on Twitter.

Who is Amit Bhardwaj?

Amit Bhardwaj, known within Indian cryptocurrency circles as the Kingpin of Crypto, is the co-founder of Gain Bitcoin, and is currently behind bars in Pune. Reason? For allegedly being the mastermind behind a 2000 crore rupee Bitcoin scam and duping thousands of people in the process. Gain Bitcoin was co-founded by Amit with his brother Vivek Bhardwaj. The brothers are also the co-founders of GB Miners and GB21, through which they lured investors.

Amit Bhardwaj’s incarceration is nothing short of a Bollywood thriller. He had been on the run for nearly eight months after fleeing India, prompting the Enforcement Directorate to issue a lookout notice against him. Late last year, he was found at the Dubai airport but escaped detention by feigning a heart attack and fled to Bangkok.

Then early this month, Thai security agencies alerted Indian officials that Bhardwaj was travelling to Delhi. He was detained at the Bangkok airport and sent to Delhi.

The ED registered its first ever ECIR – Enforcement Case Investigation Report – against Amit Bhardwaj. The ED’s decision came on the same day as the Reserve Bank of India’s decision to ban regulated entities from dealing in virtual currencies.

Consequently, the cybercrime cell filed an FIR (first information report) against Amit Bhardwaj, Ajay Bhardwaj, Rupesh Singh, Hemant Chavan, Hemant Suryavanshi, Kaka Ravde, and others, under Sections 406, 420 and 34, provisions of the Information Technology Act and Prize Chit Fund and Money Schemes (Banning) Act. A total of ten people have been arrested so far.

A similar FIR was registered against Amit Bhardwaj by the cybercrime cell in Pune in January this year as well. “Thousands of people were duped in the name of cryptocurrencies and only in Maharashtra, the number is more than 8000 people,” a source told Moneycontrol.

The case against Bhardwaj is only one of a handful such cases of fraud involving cryptocurrencies that the Pune cybercrime cell is investigating at the moment. Pune Police have already arrested eight people on charges of cheating, in connection with these cases.

Also, the crackdown on virtual currencies is not just confined to Pune. Last month, Delhi Police also registered an FIR against Amit Bhardwaj. An investor who invested in Bhardwaj’s scheme told Moneycontrol, “Amit Bhardwaj duped people, not only in India, but in the US too, and even from there, he is absconding”.

An FIR registered in Delhi clearly mentions that Amit Bhardwaj’s company duped hundreds of investors in a Ponzi scheme. According to the report, Gain Bitcoin promised to give an assured return of 10 percent every month to all its investors. In order to attract investors, it claimed to be an authorized Bitcoin miner, and that world-renowned miner Amaze Mining holds a 5 percent stake in it.

A source close to the development told Moneycontrol that all cases against anyone dealing in virtual currencies like Bitcoin, including the one against Bhardwaj, will now be clubbed into one and investigated by the ED. Despite being arrested by Pune Police already, Bhardwaj may also be arrested by the ED as it has now filed a case of its own against him.

In its monetary policy statement, the RBI stated that virtual currencies raise concerns of consumer protection, market integrity and money laundering. The Mahrashtra government also mentioned in the state assembly that the ED will probe the case involving thousands of investors getting duped to the tune of Rs 2,000 crores.

The victims of Bhardwaj’s con hailed primarily from Mumbai, Pune, Nanded and Kolhapur.

What was the scam?

As the Express reported – Bhardwaj had set up an elaborate multi-level marketing, a predatory business strategy through which he encouraged existing partners to recruit new ones by offering them a cut of the revenue from anyone they brought in. This MLM lured investors to give him Bitcoins in return for promised higher returns, Rashmi Shukla, the Police Commissioner of Pune had said. Bhardwaj’s idea was simple but technically strong.

Individual Bitcoin mining would yield fewer rewards. So, his idea was to pool resources for collective mining of Bitcoins, generating potentially higher returns. Under the scheme, people were asked to invest one Bitcoin for a 10 percent return.

The contract would be valid for 18 months. Bhardwaj also allegedly offered to provide Bitcoin mining hardware to the investors. Seven top officials of Gain Bitcoin known as the ‘Seven Stars’ were allegedly getting the maximum share of payment in their accounts from the money paid by investors.

Four of these stars were Bhardwaj’s family members while the other three were his partners. As for investors, he never gave them any of the returns, and fled the country.

This story was not entirely out of the blue. Many people who invested in Amit’s ventures were people who were largely interested in getting on the bandwagon of cryptocurrency without really understanding much or anything about it.

But there were warnings issued all along. The Caravan magazine had run a cover story about Bhardwaj back in 2017 suggesting that the transactions of Bhardwaj were not all kosher. Aria Thaker, writing the Caravan story, had said, “Bitcoin mining—an expensive computational process, and the only way to create new bitcoins—is a highly unpredictable way to make money, making it implausible for mining companies to guarantee fixed returns for their investors.

People who have knowledge of bitcoin-mining often criticise companies such as Gainbitcoin—which offer unrealistically high, fixed returns—labelling their business models Ponzi scams.”

Thaker during the course of her detailed study of the Bhardwaj ventures (they had many) spoke to Stuart Trusty, a bitcoin miner and an expert in high-performance computing. Trusty had told her that Gainbitcoin’s promised returns were “mathematically impossible.” The operation “would have to be a Ponzi,” he had said.

In January 2017, Kyle Torpey, a journalist who covers cryptocurrencies, wrote an article about Gainbitcoin titled titled “The Founder of India-based Bitcoin Mining Pool GBMiners is Running a Ponzi Scheme,” in which he analysed why the cloud-mining company’s unrealistic promises did not stack up with the realities of mining bitcoin.

ASSOCHAM (Associated Chambers of Commerce of India) organized an event back in March 2017 entitled “Bitcoin & Blockchain: The State of Cryptocurrency–Opportunities and Challenges for Indian Economy,” claiming it was a “global summit” that would address the opportunities and challenges presented by bitcoin and other cryptocurrencies.

GB Miners, a venture of the Bhardwaj brothers, was one of the main sponsors of the event. Reporters from the event recall the almost superheroic welcome that Bhardwaj got as he took to the podium. Not a surprise considering more than 90% of the audience at the conference consisted of investors in Gain Bitcoin, a lot of whom did not, we reiterate, particularly understand Bitcoin or blockchain.

They were promised great returns through the multi-level marketing strategies and they fell hook, line, and well, sinker. Of course, their belief in Bhardwaj was bolstered by ASSOCHAM’s under-researched but over-enthusiastic provision of a platform to Bhardwaj and his entities.

Meanwhile, Bhardwaj had written enough books on cryptocurrency to make it seem like he had currency in the subject and credibility on the street. The almost cult figurehead-like reverence a lot of investors had for Amit helped perpetuate the myth of this moneyminer.

It remains to be seen what happens next in this saga for Amit, but the story until now has been, like we said, nothing short of a topsy turvy ride, befitting a Bollywood potboiler. Which brings us back to Shilpa Shetty and Raj Kundra.

How Is Raj Kundra’s Business Doing Now?

After being banned for life from cricket and IPL-related activity, Raj Kundra is now yet again in the spotlight. In the wake of his being brought up for interrogation by the ED and his subsequent clarifications, shares of his Viaan Industries rose 8.5 percent intraday today on Wednesday.

Kundra and Shilpa Shetty Kundra hold 25.48 percent and 25.43 percent stake, respectively, in Viaan Industries as on March 31, 2018. The share had closed at the 20 percent lower circuit on Tuesday after Kundra was interrogated.

Perhaps that could be read as a happy ending in this subplot involving Kundra and his star wife, but the protagonist of this story is Amit Bhardwaj, and unlike the happy-go-lucky Bollywood films of Mrs Kundra, this one is beginning to look more and more like a gritty comeuppance tale with not a happy ending in sight.

Bhardwaj, the anti-hero of this tale who described himself as a “dreamer and Bitcoin pioneer,” broke bad, and taught us an important lesson along the way – How Not To Make Money. (Incidentally, the title of a novel by, whaddyaknow – Raj Kundra!)