A Southern District of New York civil lawsuit filed by the Securities and Exchange Commission (SEC) alleged that two men and two companies are responsible for fraudulently obtaining more than 325,000 Bitcoin, or approximately $2 billion, from domestic and foreign investors.
Wednesday’s complaint claimed the defendants violated the antifraud and registration provisions of the federal securities laws. Through the filing, the SEC is seeking injunctive relief, disgorgement plus interest, and civil penalties.
The filing named BitConnect, Satish Kumbhani, Glenn Arcaro, and Future Money Ltd. as defendants and alleged that between January 2017 to January 2018 they conducted a fraudulent and unregistered offering and sale of securities in the form of investments in BitConnect’s so-called “Lending Program.” The SEC explained that Kumbhani founded BitConnect, an online cryptocurrency lending platform, and hired Arcaro and his company Future Money to promote Bitconnect’s investment offerings in the United States.
Arcaro reportedly formed his own network of domestic promoters, including five individuals charged by the SEC in a related action for promoting the BitConnect offering. According to the SEC’s press release, two of those five promoters have settled charges with the SEC. According to this week’s complaint, Arcaro and his promoters, none of whom were properly registered as broker-dealers, advertised the supposedly lucrative Lending Program to potential retail investors through testimonial style videos they made and published on YouTube.
According to the SEC, claims about the investment’s greatness were false because BitConnect did not use investor funds for trading with its purported Trading Bot as promised. “Rather, BitConnect and Kumbhani siphoned investors’ funds off for their own benefit … by transferring those funds to digital wallet addresses controlled by Kumbhani, Arcaro, other promoters,” the complaint said. To cover up the deceit, BitConnect and Kumbhani allegedly conducted a “Ponzi-like scheme,” sometimes using funds deposited by newer investors in order to satisfy the withdrawal demands of earlier investors.
The SEC alleged that the defendants together stole $2 billion from retail investors, while Arcaro and Future Money ultimately received more than $24 million in commissions from BitConnect. The press release also noted that the same day the SEC filed its complaint, the Department of Justice announced that Arcaro pleaded guilty to criminal charges in a parallel proceeding.