Compliance Corner: SEC, $2 Billion Crypto Lawsuit

Editorial Staff

3 September 2021

Securities and Exchange Commission
The Securities and Exchange Commission has filed an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top US promoter and his affiliated company. The SEC alleges that they defrauded retail investors out of $2 billion through a global fraudulent and unregistered offering of investments into a program involving digital assets.

The SEC filed its complaint in the US States District Court for the Southern District of New York. The regulator alleges that from early 2017 through January 2018, the defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a "Lending Program" offered by BitConnect.

"We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets," Lara Shalov Mehraban, associate regional director of SEC's New York Regional Office, said. "We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space."

The complaint claims that, to induce investors to deposit funds into the purported Lending Program, the defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary "volatility software trading bot" that, using investors' deposits, would generate exorbitantly high returns.

However, the SEC said that instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors' funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the US, defendant Glenn Arcaro, and others.

The SEC also alleges that BitConnect and Kumbhani set up a network of promoters around the world, and rewarded them for their promotional efforts and outreach by paying commissions, a substantial portion of which they concealed from investors.

The regulator charges the defendants with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties.

The SEC previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering. In a parallel action, the Department of Justice today announced that Glenn Arcaro has pleaded guilty to criminal charges.