The founder of cryptocurrency investment platform BitConnect, an Indian national, has been charged with orchestrating a global Ponzi scheme worth $2.4 billion, federal prosecutors said.
According to court documents, Satish Kumbhani (36) from Hemal in Gujarat misled investors about BitConnect’s “loan scheme”. BitConnect has reached a peak market capitalization of $3.4 billion, the Department of Justice said.
“This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than $2 billion,” U.S. Attorney Randy Grossman of the Southern District of California said Friday.
Kumbhani is charged with conspiracy to commit wire fraud and price manipulation, operating an unlicensed money transfer business and conspiracy to commit international money laundering. If convicted on all counts, he faces a maximum aggregate sentence of 70 years in prison.
As part of the ‘loan scheme’, Kumbhani, who is at large, and his co-conspirators have touted BitConnect’s alleged proprietary technology ‘BitConnect Trading Bot’ and ‘Volatility Software’ as capable of generating substantial profits . They guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
As alleged in the indictment, BitConnect operated as a Ponzi scheme by paying early investors in BitConnect with money from later investors. In total, Kumbhani and his accomplices secured around $2.4 billion from investors.
The indictment, which was decided by a federal grand jury in San Diego, alleges that after operating for about a year, Kumbhani abruptly shut down the “loan program.” He then ordered his network of promoters to fraudulently manipulate and support the price of BitConnect’s digital currency, BitConnect Coin (BCC), to create the false appearance of legitimate market demand.
Kumbhani and his co-conspirators also concealed the location and control of fraud proceeds obtained from investors by mixing, cycling and trading the funds through BitConnect’s group of cryptocurrency wallets and various crypto exchanges. international currencies, alleged the Department of Justice.
Kumbhani further evaded US regulations governing the financial sector, including those enforced by the Financial Crimes Enforcement Network (FinCEN). For example, although BitConnect operated a money transfer business through its digital currency exchange, BitConnect never registered with FinCEN, as required by bank secrecy law.
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