SEC charges crypto exchange BitConnect with $2 billion fraud scheme

The SEC sued the founder of BitConnect, a cryptocurrency exchange platform, for fraudulently raising more than $2 billion from investors in an offering that wasn’t registered with the U.S. Securities and Exchange Commission.

The SEC sued founder Satish Kumbhani, 35, and Glenn Arcaro, a promoter, for improperly selling securities tied to the company’s purported “lending program” for about a year starting in January 2017, according to a Wednesday complaint filed in federal court in New York. BitConnect falsely told investors that it could generate monthly returns as high as 40% with its proprietary “volatility software trading bot” when no such strategy existed, according to the SEC. 

The SEC sued five BitConnect promoters in May for their roles in promoting the scheme by creating testimonials on YouTube, sometimes multiple times a day. The promoters received commissions based on their success in attracting investor cash. Arcaro and a company he controls received more than $24 million in referral commissions. 

BitConnect closed its exchange in January 2018 after receiving two cease-and-desist letters from state authorities for the unauthorized sale of securities and suffering from denial-of-service attacks. 

The SEC has been sounding the alarm over initial coin offerings for years, arguing that the sales are likely securities that must comply with federal rules.

The regulator has warned individual investors of the risks in buying the tokens, cautioning that scammers might be using them to lure investors into frauds.