The cryptocurrency startup said its bot could generate huge profits from your Bitcoin. It was a scam, SEC says The Register

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Cryptocurrency startup BitConnect and two men have been sued by the U.S. financial watchdog, who claims the now-defunct company defrauded billions of investors by lying to them about a automated trading robot that could reap huge profits.

BitConnect founder Satish Kumbhani, 35, and promoter Glenn Arcaro, 44, are accused of breaking U.S. fraud laws in a civil lawsuit filed by the SEC in New York this week. The regulator alleges that the pair touted a volatility software trading bot and promised investors that the automated system could generate returns of up to 40% per month.

“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 the SEC’s New York office. “We will aggressively prosecute and hold accountable those who make mistakes in the digital asset space.”

All investors had to do was hand over their Bitcoin, or rather lend the cryptocurrency to BitConnect, and the company’s bot would use it to transact and cash in huge profits to return to investors under. form of interest payments. Instead, the SEC claimed, digital money was funneled into electronic wallets owned by Kumbhani, Arcaro and others for their own personal benefit.

A total of 325,000 Bitcoins, worth around $ 2 billion at the time and now $ 16 billion, were donated to Kumbhani and BitConnect, according to the SEC. We are told that Arcaro was hired to promote the project; he started his own Future Money business to get people to trade with BitConnect and received commissions every time he managed to convince someone to join the loan program.

These claims were a sham, SEC alleged in court documents [PDF].

BitConnect has not deployed investor funds for trading with its alleged trading robot. Instead, BitConnect and Kumbhani siphoned funds from investors for their own benefit, and their associates benefit, by transferring those funds to digital wallet addresses controlled by Kumbhani, Arcaro, other promoters, including promoters. Arcaro, and other unknown people.

It should be noted that Arcaro has previously pleaded guilty to criminal charges of deceptive investors, in connection with the SEC case, and agreed to repay $ 24 million.

Arcaro has accepted responsibility for its actions of defrauding thousands of people around the world to invest in BitConnect, said Special Agent Eric Smith of the FBI Field Office in Cleveland.

He filled his pockets with millions of dollars, money from victims who thought their funds were invested in a new cryptocurrency with a high rate of return. Those who choose to engage in criminal financial deception should know that the FBI will not stop until all scammers are identified and held accountable.

Arcaro recruited a team of promoters through Future Money, knowing there was no trading bot working behind the scenes, the financial watchdog lawsuit claimed. When people asked for their returns, they often received funds that had previously been deposited by other investors, the SEC said. BitConnect thus exploited a Ponzi scheme.

BitConnect was founded in 2016 by Kumbhani and closed its doors two years later after regulators in the US and UK started to sniff. He received several cease and desist letters, which led him to take his website offline and shut down his loan program in 2018. His investors failed to get much of their money back.

You see, when investors wanted to participate in the program, they basically had to exchange their Bitcoin for BitConnect tokens, called BCC, and to cash out they had to sell their BCC for Bitcoin. When the company collapsed, the value of BCC plummeted and all digital assets returned to investors were worth much less than their previous Bitcoin.

Investors discovered that there was no market demand for their BCC tokens and the price of BCC was so low that their investments were suddenly worth a small fraction of a week’s value. Any investor who had not cashed before that point lost all or almost all of their funds invested in the loan program, according to the lawsuit.

Arcaro is to be convicted of wire fraud Nov. 15 in California. The current whereabouts of Kumbhanis, however, is unknown.

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