The US Securities and Exchange Commission has sued the founder of online crypto lending platform BitConnect, Satish Kumbhani, and other company officials for defrauding investors of $2 billion. It is one of the largest scams involving cryptocurrencies.
SEC Charges Against BitConnect
According to the SEC announcement, BitConnect defrauded its investors by offering unregistered investments. In a complaint filed in the United States District Court for the Southern District from early 2017 to January 2018, BitConnect is accused of the following:
- BitConnect, its founder Kumbhani, and national promoter Glenn Arcaro diverted investors’ money from the loan program for their own use and transferred the funds to digital wallet addresses they controlled.
- BitConnect and Kumbhani also built a worldwide network of promoters who received rewards and commissions for their promotional activities without the investors’ knowledge.
- Leading national promoter Arcaco used its own website, Future Money, to lure investors into the BitConnect Lending Program.
What exactly happened to BitConnect?
Originally launched in February 2016, BitConnect initially attracted a lot of attention from investors due to its high returns. At the same time, however, the company came under fire for bearing a strong resemblance to Ponzi scams that make a quick buck.
In January 2018, the Texas State Securities Board issued a cease and desist order against BitConnect. This decision was based on the fact that the company was not transparent about its earnings, which raised suspicion. As a result, BitConnect was shut down a few weeks later on January 16, 2018.
What were the problems at BitConnect?
Before BitConnect collapsed, there were several suspicious corporate policies. Here are some of them.
They had a lending platform where users could send them bitcoin. In return, the company used a trading bot to earn returns on the investment.
The unusual interest in receiving bitcoin from investors rather than the company’s own coin.
BitConnect promised investors returns of up to 40% per month and daily bonuses of 20% for users.
Unlike other cryptocurrency companies, this company was run anonymously.
BitConnect did not have a white paper that could be used commercially to advise clients or influence their decisions.
In its two years of existence, BitConnect attracted many investors and became very well known due to Carlos Matos’ infamous viral video. It is reassuring that the SEC is cracking down on such fraudulent companies. It is also a call for investors to be more vigilant against scams.