- BitConnect's founder has been charged with orchestrating a global $2.4 billion Ponzi scheme, the Justice Department said.
- Satish Kumbhani faces several charges including wire fraud, the DOJ said Friday.
- The now-defunct crypto exchange's 'Lending Program' misled people in order to pay early investors, the DOJ said.
The founder of the now-obsolete cryptocurrency exchange BitConnect has been charged with organizing a $2.4 billion Ponzi scheme after a San Diego grand jury returned an indictment, according to a statement from the Department of Justice on Friday.
Satish Kumbhani founded BitConnect in 2016 and had previously been accused of securities fraud by the Securities and Exchange Commission for the misuse of bitcoin raised from global investors. He is now charged with a litany offenses, which are punishable by up to 70 years in prison.
"Kumbhani is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering," the DOJ said.
Kumbhani remains at large, according to the DOJ. Insider has reached out to Kumbhani for comment.
The DOJ said 36-year old Kumbhani misled investors in BitConnect's 'Lending Program', in which users traded in their bitcoin for BitConnect's own coin. This then locked the value of the coin for a set amount of time and in turn they received daily interest payments.
The DOJ said Kumbhani and his co-conspirators touted the benefits of BitConnect's 'Trading Bot' and its 'Volatility Software', claiming it was able to generate profits and guarantee returns by trading on the volatility of cryptocurrency markets.
According to the indictment, BitConnect operated as a Ponzi scheme in reality, where early investors were paid with money received from new investors, rather than through the returns generated by the 'Lending Program'.
The indictment says Kumbhani closed the Lending Program after a year and told his network of promoters to fraudulently manipulate and prop up the price of BitConnect's bcc coin to give the appearance of demand for the token.
BitConnect shut down in January 2018, just two weeks after the Texas State Securities board issued a cease and desist order. Bitcoin was trading around $15,000 at that time, according to CoinMarketCap.
In the years since, the SEC and the US Department of Justice have pursued the case, with the three promoters of the Lending Program agreeing to pay $3.5 million to settle charges with the SEC last August.
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