The founder of a cryptocurrency company was charged by a San Diego federal grand jury Friday in a wide-ranging indictment alleging he defrauded global investors out of more than $2.4 billion in what prosecutors said is believed to be the largest swindle of its kind ever criminally charged.
Satishkumar Kurjibhai Kumbhani, 36, a citizen and resident of Surat, India, is charged with numerous conspiracy counts relating to wire fraud, money laundering and commodities fraud, as well as one count of operating an unlicensed money transmitting business. His whereabouts were unclear Friday night.
Kumbhani, who used aliases to hide his identity, is accused of running BitConnect, the company he formed in 2016, as a “textbook Ponzi scheme,” according to the indictment.
Investors around the world, including those in San Diego, were encouraged to buy BitConnect’s open-source, decentralized cryptocurrency, called BCC, using Bitcoin for the purchase.
Investors would then “lend” their BCC tokens to Bitconnect, which would purportedly invest the proceeds using proprietary technology known as the Trading Bot and Volatility Software. The technology was supposedly designed to trade automatically, and profitably, by buying and selling on the volatility of Bitcoin, according to the indictment.
But much of the technology remained a mystery to investors. When someone asked for a demonstration at an event in 2017, Kumbhani was evasive: “So you ask me very hard question,” he told one interviewer. He added later, “For privacy reasons we are not disclosing anything …”
Prosecutors say the investments weren’t being traded as promised but were instead used to pay out earlier investors, typical of a pyramid scheme. The funds would also be used to pay BitConnect’s army of promoters, who would market the investment opportunity on social media and at live events.
Glenn Arcaro, described by prosecutors as “one of the most prolific and successful” of the bunch overseeing the United States, also formed his own cryptocurrency education course called Future Money. But the course was really a way to funnel potential investors to BitConnect, prosecutors said.
For his role in the scheme, Arcaro, a Los Angeles resident, pleaded guilty in September to conspiracy to commit wire fraud.
BitConnect caught the attention of regulators in Texas and North Carolina beginning in early 2018, prompting Kumbhani to announce days later that the Lending Program was being shut down. The value of BCC plummeted.
But Kumbhani had a plan to prop up the price of BCC, ordering his network of promoters to buy BCC on all crypto exchanges “to create the false appearance of legitimate market demand for BCC,” the indictment states.
The fallout was swift around the globe, with South Korean investors “freaking out” and one promoter warning Kumbhani that people were talking in chat rooms about committing suicide, according to the indictment.
Another promoter wrote in Australia wrote that “we are getting death threats … [and] the coin will be useless! !!!!”
Prosecutors consider this price manipulation conspiracy to be commodities fraud, which is believed to be the first time cryptocurrency has been alleged to function as a commodity, the U.S. attorney’s office said.
In all, the scheme defrauded victims out of $2.4 billion, prosecutors said. Investor victims can visit justice.gov/usao-sdca/us-v-glenn-arcaro-21cr02542-twr for more information on their rights and how to submit a victim impact statement.