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Crypto Crime Nets Another $2B Fraudster

Crypto Crime Nets Another $2B Fraudster

Just as reports started to emerge that due to improved security systems, cryptocurrency-related crimes are getting lower, the SEC has charged the founder of a major crypto lending platform with a $2-billion fraud.

The SEC has charged BitConnect founder Satish Kumbhani, an Indian national, with fraud for lying about the exchange’s ability to generate profits and violating registration laws meant to protect investors.

"We allege that these defendants unlawfully sold unregistered digital asset securities by actively promoting the BitConnect lending program to retail investors," said Lara Shalov Mehraban, Associate Regional Director of SEC's New York Regional Office. 

In a lawsuit in Manhattan federal court, the SEC said investors in a BitConnect "lending programme were told BitConnect used a volatility software trading bot that could generate returns of 40 percent per month, and were given fictitious returns showing 3,700 percent annualised gains”.

Investors ended up losing much of their money after the price of BitConnect Coin sank 92 percent in early 2018.

The scheme is believed to be the largest cryptocurrency fraud ever charged criminally. 

The SEC also charged promoter Glenn Arcaro and his firm Future Money Ltd with fraudulently receiving more than $24 million in “referral commissions”. 

The lawsuit comes more than three years after BitConnect was forced to shut down after regulatory warnings and allegations of fraud.

Also, earlier this year, the SEC sued three BitConnect promoters, who received BCC tokens for attracting new investors to the scheme.

In 2019, cryptocurrency theft skyrocketed year-over-year, with losses from digital currency crime topping $4.4 billion, a 150% increase over the first nine months of 2018.

In 2020, due mainly to improved security, crimes targeting the cryptocurrency sector dropped by more than half compared to the previous year. CipherTrace, a cryptocurrency crime and anti-money laundering report, reported that losses from cryptocurrency theft, hacks, and fraud fell 57% to $1.9 billion.

Over the past couple of years, cryptocurrency has been linked to criminal activities such as Ponzi schemes, extortion, theft, and money-laundering. The currency of choice is bitcoin, which accounts for 95% of illicit cryptocurrency transactions.

Still, bitcoin addresses with known criminal connections transferred at least $3.5 billion of the virtual currency in 2020, which is less than 1% of cryptocurrency transactions. The traditional banking system is more stringent; however, that has not stopped major global banks from seeing trillions of dollars in "suspicious" transactions. 

Last year, a Ponzi scheme called WoToken defrauded investors out of $1.1 billion, accounting for 58% of the year’s major crime volume. 

Last November, a Chinese court sentenced five individuals up to nine years in prison in connection with their involvement in the WoToken scam that defrauded over 700,000 Chinese citizens.

In July, the SEC accused an 86-year-old woman and her son of being part of a Ponzi scheme involving false promises of sophisticated supercomputers and AI to invest in securities trading and cryptocurrency.

According to the SEC, the pair trapped hundreds of investors with promises of guaranteed annual returns of up to 30% plus monthly compounded interest. They made away with more than $12 million in the end.

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