Satish Kumbhani allegedly defrauded U.S. BitConnect investors of $2 billion
The U.S. Securities and Exchange Commission (SEC) this week filed charges against Satish Kumbhani, BitConnect which he founded and some of its officials. The SEC alleged retail investors lost $2 billion “through a global fraudulent and unregistered offering of investments into a program involving digital assets”
“Fraudsters continue to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses,” the SEC notes.
According to the SEC's complaint, filed in a court in New York, from early 2017 through January 2018, BitConnect induced investors to deposit funds into a “lending program,” by falsely claiming that its proprietary volatility software trading bot “would generate exorbitantly high returns.” Investors were lured by BitConnect and its promoters by saying the platform “could generate returns of 40% per month, and were given fictitious returns showing 3,700% annualized gains,” Reuters reported.
However, instead of deploying investor funds for trading, the defendants allegedly siphoned them “for their own benefit by transferring those funds to digital wallet addresses controlled by them.”
The SEC alleges BitConnect ran a pyramid scheme, with promoters “rewarded for recruiting new victims.” It was also alleged to be a Ponzi scheme, with “investor withdrawals (being paid) out of incoming investor funds…leading the platform to collapse and investors to lose massive amounts of money.”
Kumbhani and BitConnect also allegedly “established a network of promoters around the world, and rewarded them for their promotional efforts and outreach by paying commissions, a substantial portion of which they concealed from investors.”
Kumbhani also launched the BitConnect coin in 2016. From an initial value of $0.17, its price soared to $463 in 2017. BitConnect shut down in January 2018, under pressure from regulators in the U.K as well as in Texas, North Carolina and Kentucky. The price of the coin collapsed to $0.40.
The BitConnect coin achieved infamy after a video featuring a company spokesperson, Carlos Matos, singing its praises at a company conference in Thailand went viral on YouTube. The clip featured prominently on an 2018 episode of HBO’s Last Week Tonight that lampooned cryptocurrency scams.
U.S. investigators are being assisted by the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Ontario Securities Commission, the Romanian Financial Supervisory Authority, and the Thailand Securities and Exchange Commission.
Satish Kumbhani, 35, an Indian citizen, was apparently based in Surat, Gujerat, India, but presently has been difficult to track down. He founded BitConnect in 2016 and describes himself as its “Asian Leader” on his LinkedIn profile.
Kumbhani and the other defendants will likely also face criminal charges, which could lead to prison sentences. Glenn Arcaro, the lead promoter of BitConnect for the United States, used a website he created, Future Money, “to lure investors.” This week Arcaro pled guilty to criminal charges launched against him by the U.S. Department of Justice, in parallel with the SEC’s civil case. The judge will announce Arcaro’s criminal prison sentence in November.
Divyesh Darji was the chief promoter of BitConnect in India. Investors in India reportedly lost about $3 billion in BitConnect’s Indian scam operations. In 2018, Darji was arrested at the Delhi airport, upon his return from Dubai, where he was reportedly in hiding. Like Kumbhani, he is from Surat, Gujerat.
Darji was also charged, by the Indian police, of running two other cryptocurrency scams: Regal Coin and Dokado. Last year, the Surat police arrested Umesh Jain and two of his associates for allegedly kidnapping, assaulting and extorting $100,000 from Darji. Jain reportedly claims he was seeking the return of $200,000 he had invested in Dokado.
If the SEC charges are upheld in court, Satish Kumbhani and the other defendants will be asked to repay the funds they pocketed, with interest and civil penalties. In August, three defendants, charged in a related action for promoting the BitConnect offering, pled guilty and settled the SEC’s civil charges by agreeing to pay fines.
It is likely that the defendants, who accepted guilty pleas, will provide evidence and turn into witnesses for the U.S. prosecution of Kumbhani in the SEC case and also in a criminal case, if one is filed by the Justice Department.
On his LinkedIn profile, Kumbhani’s education credentials do not list a bachelor’s degree or university, but states he is a “Masterate from greenwich University, London, I involved in studying emerging technology and business networks. Introduction to Bitcoin first time in 2013, I spend my time in learning the opportunity behind bitcoin and cryptocurrency network.”