Bitconnect’s founder Satish Kumbhani indicted by the US in $2.4 billion crypto fraud case

Founder and CEO of cryptocurrency investment platform BitConnect, an Indian national, is accused of orchestrating a $2.4 billion Ponzi scheme, according to federal prosecutors.

What is Bitconnect?

Satish Kumbhani founded BitConnect, an open-source cryptocurrency with a high yield investment program, a type of Ponzi scheme. When the paid-for earning platform was closed on January 16, 2018, and the users’ investment funds were refunded following a 92% price crash, Bitcoin’s value plummeted and fell below $1 from a high of nearly $500.

The core feature of Bitconnect is its lending platform, which allows users to exchange Bitcoin for Bitconnect Coin and lock in the instantaneous value of the coin while earning interest calculated daily. Bitconnect’s flagship program was a lending platform that allowed users to lend Bitconnect Coins for interest payments, which came with no up-front costs.

A trading bot determined how much users could exchange their interest earnings for Bitcoin through payment of interest. The trading bot was the most controversial part of the Bitconnect.co system.

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On which date did Bitconnect announce its shut down?

A cease-and-desist order from Texas and North Carolina forced BitConnect to shut down its cryptocurrency exchange and lending operations on January 16, 2018. 

Bitconnect’s assets were frozen on January 31, 2018, by an order from the United States District Court for the Western District of Kentucky, which asked Bitconnect to reveal the addresses of its cryptocurrency wallet and trading accounts along with the identities of anyone to whom Bitconnect sent digital currency within the last 90 days.

Bitconnect X, which has just launched its ICO, is still open and operational, with users being able to purchase BCCX coins with their Bitconnect coins. Due to Bitconnect shut down on January 17, 2018, the BCC prices crashed by 92%. Bitconnect announced it would refund its loan holders.

How much money did Kumbhani raise from its investors before shutting down?

“Trading bots” and “volatility software” adopted by BitConnect would trade on the global crypto markets, but authorities later revealed that the trading bots and volatility software were part of a massive Ponzi scheme that raised $2.4 billion from investors before shutting down in January 2018, prosecutors said.

Why did Bitconnect’s price collapse?

The multilevel marketing structure and impossibly high payouts (1% daily compounded interest) of Bitconnect raised suspicion that the company was a Ponzi scheme. Bitconnect interest fluctuated greatly with the volatility of Bitcoin, the currency-penalty linked to the service.

Before the decline in its price, the Bitconnect Coin ranked among the top 20 most successful cryptocurrency tokens. It climbed from $0.17 post-ICO to $463 at its peak in December 2017 and has declined to $0.40 as of March 11, 2019. Back in March 2017, Bitconnect released outstanding loans at a rate of US$363.62 to the Bitconnect Wallet in the form of BCC. But shortly afterwards, the exchange price and liquidity collapsed, resulting in a nearly complete loss of value.

Fraud committed by Satish Kumbhani

Bitconnect's founder Satish Kumbhani indicted by the US in $2.4 billion crypto fraud case

Documents filed with the court allege that Satish Kumbhani (36) of Hemal, Gujarat, misled investors to gain access to BitConnect’s “Lending Program.” BitConnect’s market capitalization peaked at USD 3.4 billion, the Department of Justice stated.

In addition to defrauding investors of more than USD 2 billion, this indictment charges a cyber-fraud scheme. The U.S. Attorney for the Southern District of California Randy Grossman announced on Friday.

If found guilty by a jury of all counts, Kumbhani could face a maximum total sentence of 70 years in prison if convicted of wire fraud and price manipulation.

According to Kumbhani’s purported proprietary technology, “BitConnect Trading Bots” and “Volatility Software”, the “Lending Program” promised substantial profits by using investors’ money for cryptocurrency exchange trades. 

Kumbhani and his co-conspirators acquired approximately USD 2.4 billion from investors through BitConnect’s Ponzi scheme, according to the indictment.

During the process, Kumbhani’s network of promoters was directed to fraudulently manipulate and prop up the price of BitConnect’s digital currency, BitConnect Coin (BCC), to create the false appearance that there was legitimate demand for it, according to the federal indictment.

In addition to concealing the proceeds of the fraud, Kumari and his co-conspirators sought to control and commingle the funds through BitConnect’s cluster of cryptocurrency wallets and exchanges around the world, according to the Justice Department.

Among the US regulations that Kumbhani violated were those enforced by the Financial Crimes Enforcement Network (FinCEN). For example, even though BitConnect operated a money-transmitting business through its digital currency exchange, BitConnect did not register with FinCEN as required by the Bank Secrecy Act.

Where did Satish Kumbhani vanish?

A former affiliate of BitConnect, Satish Kumbhani, accused of a $2.4 billion Ponzi scheme in the U.S. last week, has fled his native India, authorities said.

A lawsuit has been filed separately by the Securities and Exchange Commission against Kumbhani, alleging that he raised more than $2 billion fraudulently from investors in his cryptocurrency exchange platform. However, the SEC does not know where Kumbhani is and could not serve him.  

During the week, the mystery deepened. 

SEC attorney Richard Primoff wrote in a court filing that Kumbhani, 36, has likely moved out of India to an unknown address in a foreign country. Since November, the SEC has been contacting the country’s financial regulatory authorities to learn Kumbhani’s location, but the location remains a mystery. 

What is blockchain?

Blockchain.com is a company that provides cryptocurrency financial services. In 2011, the company was the first Bitcoin blockchain explorer, and since 2012, a cryptocurrency wallet has accounted for about 28% of all bitcoin transactions.

Where is Satish kumbhani right now?

A former affiliate of BitConnect, Satish Kumbhani, accused of a $2.4 billion Ponzi scheme in the U.S. last week, has fled his native India, authorities said.A lawsuit has been filed separately by the Securities and Exchange Commission against Kumbhani, alleging that he raised more than $2 billion fraudulently from investors in his cryptocurrency exchange platform.

However, the SEC does not know where Kumbhani is and could not serve him. During the week, the mystery deepened. SEC attorney Richard Primoff wrote in a court filing that Kumbhani, 36, has likely moved out of India to an unknown address in a foreign country.

Since November, the SEC has been contacting the country’s financial regulatory authorities to learn Kumbhani’s location, but the location remains a mystery.

What is cryptocurrency?

Cryptocurrency, also known as crypto-currency or crypto, is a form of electronic currency involving a computer network, which is not dependent on any centralized authority, such as a bank or government, for the maintenance or upkeep of it.

What is the security exchange commission?

Founded in 1929 in the wake of the Wall Street Crash, the Securities and Exchange Commission enforces antitrust laws within the United States. Its primary function is to protect investors from market manipulation.

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