US DOJ indicts BitConnect founder for $2.4B Ponzi scheme

The US Department of Justice has now indicted BitConnect co-founder Satish Kumbhani, an Indian national, for running an alleged $2.4 billion Ponzi scheme.

A federal grand jury in San Diego announced that BitConnect deceived investors through its fraudulent lending programs and Initial Coin Offerings (ICOs). BitConnect investment platform allegedly reached a market capitalization of $3.4 billion at its peak.

BitConnect claimed to be a cryptocurrency lending platform but was later revealed to be a high-yield investment program, a type of Ponzi scheme. Kumbhani and his colleagues asserted that the platform’s technology, such as “BitConnect Trading Bot” and “Volatility Software,” will result in higher profits and guaranteed results.

Instead, the company paid the earlier Bitconnect investors with money that came from later investors, claiming that it came from profits generated via its lending platform. Kumbhani suddenly shut down the lending program after a year and started selling BitConnect’s native token BitConnect Coin (BCC).

Thereafter, Kumbhani used his network of promoters to “fraudulently manipulate and prop up the price” of the token, making it appear as if there was a demand for BCC. Combining all the charges, the DOJ noted:

“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.”

In 2017, BitConnect Coin came ranked in the top 10 in terms of market capitalization but plummeted in 2018 after US regulators pointed out a series of fraudulent activities related to the platform. The exchange later suspended its operations, with no other crypto exchanges handling its tokens by Sept. 2018. The FBI later opened an investigation against BitConnect in February 2019.

“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,” Eric B. Smith, Special Agent in Charge of the FBI’s Cleveland Field Office, said in a statement.

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