The US Securities and Exchange Commission on Wednesday, filed an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company, alleging that they defrauded retail investors out of $2 billion through a global fraudulent and unregistered offering of investments into a program involving digital assets.
It is one of the most high profile cases of fraud involving crypto platforms, and it reinforces the much advocated need to regulate cryptocurrency activities.
According to the SEC’s complaint, filed in the United States District Court for the Southern District of New York, from early 2017 through January 2018, Defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a “Lending Program” offered by BitConnect.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
The complaint alleges that, to induce investors to deposit funds into the purported Lending Program, Defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary “volatility software trading bot” that, using investors’ deposits, would generate exorbitantly high returns.
However, the SEC alleges that instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro, and others.
The SEC’s complaint further alleges that BitConnect and Kumbhani 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. According to the complaint, among these promoters was Arcaro, the lead national promoter of BitConnect for the United States who used the website he created, Future Money, to lure investors into the Lending Program.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC’s New York Regional Office. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
The SEC’s complaint charges Defendants with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties. The SEC previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering. In a parallel action, the Department of Justice on Wednesday announced that Arcaro has pleaded guilty to criminal charges.
The investigation was conducted with the assistance of 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. The international collaboration that busted the crime signifies the synergy between SECs around the world, as a new measure to tackle cases of crypto platforms’ fraud.
The SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force has issued an Investor Alert on Digital Asset and Crypto Investment, which exacerbates the troubles of the digital asset industry. The crypto market has witnessed a significant drop in value since April, and has been struggling to meet investors’ expectations, forcing a massive selloff.
In June, the report of two South African brothers who vanished with crypto asset worth $3.6 billion threw investors and the entire crypto market into disarray, spooking potential investors who are already wary of the market losses. The BitConnect news may be what many need to take the SEC’s Investor Alert on Digital Asset and Crypto Investment seriously.