The Securities and Exchange Commission announced Wednesday that it has filed an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company, alleging that they defrauded retail investors out of $2 billion through a global fraudulent and unregistered offering of investments into a program involving digital assets.
According to the SEC's complaint, filed in the United States District Court for the Southern District of New York, from early 2017 through January 2018, Defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a "Lending Program" offered by BitConnect.
The complaint alleges that, to induce investors to deposit funds into the purported Lending Program, defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary "volatility software trading bot" that, using investors' deposits, would generate exorbitantly high returns.
However, the SEC alleges that instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors' funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro, and others.
The SEC's complaint further alleges that BitConnect and Kumbhani established a network of promoters around the world, and rewarded them for their promotional efforts and outreach by paying commissions, a substantial portion of which they concealed from investors.
According to the complaint, among these promoters was Arcaro, the lead national promoter of BitConnect for the United States who used the website he created, Future Money, to lure investors into the Lending Program.
"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 SEC's New York Regional Office. "We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space."
The SEC's complaint charges Defendants with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties. The SEC previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering. In a parallel action, the Department of Justice today announced that Arcaro has pleaded guilty to criminal charges.
The SEC's investigation was conducted by Gwen Licardo of the SEC's Retail Strategy Task Force, Michael Baker and Pamela Sawhney of the SEC's Cyber Unit, and Jorge Tenreiro and Jordan Baker of the SEC's New York Regional Office. The case was supervised by John O. Enright, Ms. Mehraban and Kristina Littman, Chief of the Cyber Unit. The litigation is being conducted by Mark Sylvester, Richard Primoff, Ms. Licardo, Mr. Baker, and Ms. Sawhney. The Commission appreciates the assistance of the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Ontario Securities Commission, the Romanian Financial Supervisory Authority, and the Thailand Securities and Exchange Commission.
The SEC's Office of Investor Education and Advocacy and Enforcement's Retail Strategy Task Force has issued an Investor Alert on Digital Asset and Crypto Investment. Investors can find additional information about digital asset and "crypto" investment schemes, including the warning signs of fraud, at Investor.gov.