In a statement the SEC said it has sued the founder of a now-defunct cryptocurrency exchange platform BitConnect over the alleged role of the founder’s role in fraudulently raising nearly $2 billion from thousands of retail investors.
The SEC expanded its civil lawsuit against BitConnect founder Satish Kumbhani, which it had announced in May, with lying about the company’s ability to generate profits, and for violating registration laws meant to protect investors.
In its lawsuit in Manhattan federal court, the SEC also charged promoter Glenn Arcaro and his firm, Future Money Ltd, with fraudulently receiving more than $24 million in “referral commissions” along with other sums as BitConnect’s top U.S. promoter.
Arcaro has pleaded guilty to a related criminal wire fraud conspiracy charge before U.S. Magistrate Judge Mitchell Dembin in San Diego. His sentencing is scheduled for November 15.
The lawsuit seeks to impose fines, recoup ill-gotten gains, and other relief.
BitConnect created a digital token called a BitConnect Coin that could be exchanged for bitcoin. According to the SEC, investors in a BitConnect “lending program” were told that BitConnect used a “volatility software trading bot” that could generate returns of 40% per month, and were given fictitious returns showing 3,700% annualized gains.
According to the SEC, investors lost much of their money after the price of BitConnect Coin tanked by 92% on January 16, 2018.
“BitConnect ran a “textbook Ponzi scheme” by paying earlier investors with new investor money,” said prosecutors.
On May 28, 2021 the SEC also sued five other BitConnect promoters.
While the SEC has obtained judgments requiring two promoters, Michael Noble and Joshua Jeppesen, and Jeppesen’s fiancee to pay more than $3.5 million and 190 bitcoin, other promoters have yet to respond to the lawsuit or have not been served.