Details of the fraud
Between February 2016 and January 2018, BitConnect misled investors by claiming its platform could generate significant profits and guaranteed monthly returns of up to 40% by trading on volatile cryptocurrency exchange markets.
Kumbhani, a citizen of India, Arcaro, a U.S. citizen, and other co-conspirators conducted a fraudulent and unregistered offering and sale of securities in the form of investments using BitConnect’s Lending Program.
In effect, investors would send bitcoins to BitConnect to purchase an equivalent value of the BitConnect Coin (BCC), the trading coin on the BitConnect platform, in return for interest payments.
BCC was a proof-of-stake cryptocurrency token whereby investors commit a stake—their private capital—to the enterprise in the form of the network’s native tokens.
Later investigations revealed that BitConnect was not operating as a trading platform, but using money from new investors to pay prior investors in a classic Ponzi operation.
Instead of market trading, investment funds were transferred to digital wallets controlled by Kumbhani and his co-conspirators and international cryptocurrency exchanges for their own benefit.
Additionally, Kumbhani and his co-conspirators manipulated the price of BCC tokens, creating a false image of legitimate high-market demand for investors.
Kumbhani shut down the Lending Program in 2017 and closed BitConnect in 2018 after several regulatory investigations and orders.