Victims of the notorious BitConnect Ponzi scheme may finally see some form of restitution, following a recent ruling in a court in California.
The US District Court for the Southern District of California determined that around 800 victims of the scheme will receive $17 million in restitutions.
The Story Behind BitConnect
BitConnect was a cryptocurrency lending platform that promised investors guaranteed returns through its proprietary “BitConnect Trading Bot” and “Volatility Software.” The platform operated from 2016 to 2018, and at its peak, it had a market capitalization of over $2 billion. However, it was revealed to be a Ponzi scheme, where returns were paid to earlier investors using money from new investors.
In January 2018, the Texas State Securities Board issued an emergency cease-and-desist order against BitConnect, claiming that it was promoting a “Ponzi scheme” to Texas residents. The North Carolina Secretary of State Securities Division issued a similar order a few days later. Soon after, the platform closed down, leaving thousands of investors out of pocket.
In September 2021, Glenn Arcaro, a US-based promoter for BitConnect, pleaded guilty to conspiracy to commit wire fraud. He was sentenced to 38 months in prison a year later.
In November 2021, the U.S. Department of Justice announced that it would sell $56 million worth of cryptocurrency seized from Arcaro to compensate victims of the fraud. Furthermore, In February 2022, the DOJ revealed an indictment against the project’s founder Satish Kumbhani, who still at large, accusing him of obtaining approximately $2.4 billion from investors in a Ponzi scheme. The government is charging Kumbhani with conspiracy to commit wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
In 2020, the court has ruled that the 800 victims of the scheme are eligible for restitutions of $17 million, it is not clear yet if the restitutions will be paid from the fund raised from the sale of the seized assets or from other sources.
Be Aware of Crypto Ponzi
The BitConnect case serves as a reminder of the risks associated with investing in unregulated, unproven cryptocurrencies and highlights the importance of due diligence when considering such investments. It’s also a warning that it’s important to be cautious of any investment opportunity that promises guaranteed returns, especially when it is using complex or hard-to-understand technology as a selling point.
BitConnect had marketed itself as a legitimate cryptocurrency lending platform, promising investors guaranteed returns through its proprietary technology, including the “Bitconnect Trading Bot” and “Volatility Software”. However, it was revealed that the platform operated as a classic Ponzi scheme, using funds from new investors to pay returns to earlier investors.
The scheme’s promoter, Glenn Arcaro, pleaded guilty to conspiracy to commit wire fraud in September 2021 and was subsequently sentenced to 38 months in prison. In November 2021, the Department of Justice announced that it would sell $56 million worth of seized cryptocurrency to compensate victims of the fraud.
The founder of BitConnect, Satish Kumbhani, was also indicted by the DOJ in February 2022, for his alleged role in obtaining $2.4 billion from investors through the Ponzi scheme. Kumbhani is currently at large and is facing charges of conspiracy to commit wire fraud, commodity price manipulation, operation of an unlicensed money transmitting business, and international money laundering.
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