The writing is on the wall for indicted crypto fraudster Satish Kumbhani as a US jury charges him with multiple charges of cryptocurrency fraud, which could land him up to 70 years in prison.
A federal jury in San Diego has filed an indictment, accusing the founder of cryptocurrency investment platform BitConnect of operating a Ponzi scheme.
Court documents reveal that founder Satish Kumbhani lied to investors about a product called the “Loan Program”. The loan product allegedly used “BitConnect Trading Bot” and “Volatility Software” to trade cryptocurrency volatility. BitConnect operated as a Ponzi scheme, according to the indictment, as the company paid early investors with funds from later investors. Kumbhani and his group of co-conspirators deviated close to $2.4 billion from investors.
Kumbhani ended the Loan Program after one year. He then used his network of marketers to manipulate the price of BitConnect's native digital asset, BitConnect Coin (BCC), to manufacture a demand for the coin. Funds obtained through fraud were carefully routed through BitConnect’s suite of cryptocurrency wallets and other international cryptocurrency exchanges.
Kumbhani operated BitConnect as a money transmission company, but never registered the company under the Bank Secrecy Act. The Financial Crime Repression Network (FinCEN) imposes the Act requiring financial institutions to maintain a database of cash purchases of negotiable instruments, file cash transaction reports for transactions in excess of US$10,000, and report suspicious activity. Suspicious activity may be related to money laundering, tax evasion or other crimes.
Famous Ponzi encryption schemes
Ponzi schemes are nothing new, and BitConnect has occupied Ponzi territory since at least 2018, although it has been reborn several times with different founders. The alleged owner of the original BitConnect, Divyesh Darji, was arrested in 2018.
A few other noteworthy cases have emerged in the cryptocurrency space. Recently, military police and the Ostensive Rapid Intervention Group in Brazil arrested a South African, Johann Steynberg, for promising returns of up to 10% on the most significant cryptocurrency scam of 2020. More than 29,000 BTC passed through the hands of Steynberg’s company. , Mirror International Trade.
Another case emerged in Brazil in 2021, where the Federal Police dismantled a Ponzi scheme and seized US$30 million. The authorities made five arrests, one of them being Gladson Acácio, who allegedly transferred billions of dollars through the pyramid scheme, promising up to 15% in return.
Gutenberg Dos Santos, a Panamanian, was arrested in his home country for the Airbit Ponzi scheme that tricked investors into thinking they would earn shares of the profits and unrealistic rates of return. The Ponzi scheme is believed to have generated more than $20 million since its inception in 2015. Dos Santos was later extradited to the US to face trial and a sentence of 20 to 30 years.
We're Committed to Justice, Says US Attorney
The authorities are convinced that they will continue to fight for victims of cryptocurrency fraud. “The U.S. Attorney’s Office and our law enforcement partners are committed to seeking justice for victims of cryptocurrency fraud,” said Randy Grossman, Attorney for the Southern District of California. If Khumbani is convicted on all counts, he faces up to 70 years in prison. He is currently on the run.
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