Last year, the Securities and Exchange Commission (SEC) sued trading platform BitConnect for the $2.4 billion Ponzi Scheme. However, the financial watchdog doesn’t know how to serve court papers to Founder and CEO Satish Kumbhani – who reportedly disappeared this week.
Kumbhani is the brainchild of BitConnect – an online trading platform that allowed investors to exchange virtual currencies. However, the illegal part was a high-yield investment program. Kumbhani, an Indian citizen, has been accused of misleading investors about BitConnect’s lending operations, which promised investors large returns on their crypto.
There was just one problem: it wasn’t real. None of it was… and now there is an aggressive stack of charges levied against the Indian citizen: wire fraud, operating an unlicensed money transmitting business, and three counts of conspiracy. Authorities are now conducting a search for the 36-year-old, who has reportedly fled India (and presumably will crop up in some country that does not have an extradition treaty with the United States.)
“Since November, the commission has been consulting with that country’s financial regulatory authorities in an attempt to locate Kumbhani’s address. At present, however, Kumbhani’s location remains unknown,” said SEC attorney Richard Primoff in a filing in federal court in Manhattan.
The BitConnect story began in 2016 during the craze for initial coin offerings (ICOs) when it was one of the most talked-about topics. By mid-2017, BitConnect had raised billions of dollars from global investors. Using its native token BCC, the project promised investors a lending program using its proprietary “trading bot” and “volatility software” to earn a 10% return.
Crypto investors jumped into it, investing their life savings, but reality soon slapped them in the face. The native token BCC, which peaked at $463.30 in 2017 and reached a market cap of $3.4 billion, eventually collapsed. Even Ethereum founder Vitalik Buterin blasted the cryptocurrency operations.
The firm announced that it was closing its lending operation in January 2018, which caused a panic among investors and the token price crashed to a penny. The firm made a cash-back promise of $363.62 per token, but it never materialized.
Kumbhani kept eluding investigators around the world, but no one knew where he was. Meanwhile, Divyesh Darji, his key aide, is facing a lawsuit in India, and other promoters across Australia and the US have been convicted.
The BitConnect saga is a tale about a time when cryptocurrency existed without any legal boundaries and education. The US authorities are cracking down on crypto scams now, so such frauds are taking a major hit. Recently, a crypto derivatives exchange, BitMex, was recently fined $20 million after its founders pleaded guilty to skirting anti-laundering laws in the United States. Last month, two entrepreneurs were arrested by the DOJ for allegedly trying to launder more than 25,000 bitcoins taken from the 2016 Bitfinex hack. It will be interesting to see if these investigations lead to investors getting their money back.