BitConnect founder risks 70 years in prison for $2.4 billion crypto scam

The alleged fraudulent cryptocurrency investment platform reached a peak market capitalization of $3.4 billion, but the alleged scammers “only” obtained approximately $2.4 billion from investors.

The founder of BitConnect, Satish Kumbhani, saw a federal grand jury in San Diego return an indictment charging him with orchestrating a global Ponzi scheme.

The scheme was built around BitConnect’s “Lending Program” which touted the firm’s purported proprietary technology as being able to generate substantial profits and guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.

Satish Kumbhani and his team stand accused of operating a Ponzi scheme that paid earlier BitConnect investors with money from later investors.

Kumbhani is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity 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.

The alleged fraudulent cryptocurrency investment platform reached a peak market capitalization of $3.4 billion, but the alleged scammers “only” obtained approximately $2.4 billion from investors.

After operating for approximately one year, Kumbhani allegedly and abruptly shut down the Lending Program and directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency, BCC, to create the false appearance of legitimate market demand for BCC.

In addition to the Ponzi scheme, BitConnect never registered with FinCEN, despite having operated a money transmitting business through its digital currency exchange.

Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division, said: “Crime, particularly crime involving digital currencies, continues to transcend international boundaries. The department is committed to protecting victims, preserving market integrity, and strengthening its global partnerships to hold accountable criminals engaging 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. The U.S. Attorney’s Office and our law enforcement partners are committed to pursuing justice for victims of cryptocurrency fraud”, said U.S. Attorney Randy Grossman for the Southern District of California.

Special Agent in Charge Eric B. Smith of the FBI’s Cleveland Field Office, commented: “Today’s indictment reiterates the FBI’s commitment to identifying and addressing bad actors defrauding investors and sullying the ability of legitimate entrepreneurs to innovate within the emergent cryptocurrency space. Dressing up a tried and true fraud scheme with a new twist and basing it overseas will not deter the resolve and dedication of the FBI to meticulously investigate and bring such fraudsters to justice.”

Special Agent in Charge Ryan L. Korner of the IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office, added:  “As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars. However, make no mistake, our agency will continue our long tradition of following the money, whether physical or digital, to expose criminal schemes and hold the fraudsters accountable for their illegal acts of trickery and deceit.”