SEC charges BitConnect and its founder with operating a $2 billion Ponzi scheme
- The Securities and Exchange Commission filed a lawsuit against the creator of BitConnect
- Bitconnect fraudulently raised more than $2 billion dollars.
- The SEC is escalating warnings about initial coin offerings
The founder of BitConnect, a cryptocurrency exchange platform, was sued by the Securities and Exchange Commission for fraudulently raising more than $2 billion in an unregistered offering.
BitConnect was launched in 2016, and the company generated a digital currency called BitConnect Coin that could be exchanged for bitcoin.
According to a Wednesday complaint filed in federal court in New York, the SEC sued founder Satish Kumbhani, 35, and Glenn Arcaro, a promoter, for selling unregistered securities related to the firm’s purported “lending program” for nearly a year beginning in January 2017. The SEC claims that BitConnect falsely claimed to investors that its “volatility software trading bot” could produce monthly returns of up to 40% when no such technique existed.
In May, the SEC filed lawsuits against five BitConnect promoters for their roles in promoting the fraud by creating YouTube testimonials multiple times a day. The promoters earned money based on how much investor cash they were able to attract. More than $24 million in referral fees have been paid to Arcaro and a firm he controls.
In January 2018, the BitConnect exchange closed after it was hit by two cease-and-desist letters from state authorities for unlawful securities sales and having endured denial-of-service assaults.
The SEC has been issuing warnings about initial coin offerings for years, contending that the sales are most likely securities that must follow federal regulations. Individual investors have been cautioned not to invest in the tokens, with the SEC warning that scammers may use them to entice people into scams.
However, it’s important not to forget that Bitconnect wasn’t the only major cryptocurrency fraud in history. It is, however, arguably one of the most prolific. There were several red flags, but most of the customers who had invested in it chose to ignore the warnings of more experienced cryptocurrency investors, allowing Bitconnect’s immense popularity.