Bitcoin creates a textbook Ponzi scheme: up to 12.9 billion in funds involved

According to media reports, the top U.S. securities regulator recently sued Satish Kumbhani, the founder of BitConnect (a cryptocurrency trading platform), accusing him of raising approximately $2 billion (Editor's note: approximately 12.9 billion yuan) from thousands of retail investors through fraudulent means.

According to media reports, BitConnect has now closed down.

In May, the U.S. Securities and Exchange Commission (SEC) accused Satish Kumbhani in a civil case of misrepresenting BitConnect’s profitability and violating registration laws designed to protect investors.

In a lawsuit filed in federal court in Manhattan, the SEC also charged the main promoter of the scam, Glenn Arcaro, and his company, Future Money Ltd, with fraudulently collecting more than $24 million in "referral commissions" and other payments from investors.

Arcaro also pleaded guilty on Wednesday to a criminal count of wire fraud.

According to media reports, BitConnect was founded in 2016 and created a digital token called BitConnect Coin, which is a popular cryptocurrency that can be used to exchange for Bitcoin.

The SEC said that investors who participated in the BitConnect "lending program" were told that BitConnect used a "volatility software trading robot" that could bring in 40% returns per month, and the false returns investors received showed an annual yield of 3,700%.

But the regulator said investors lost a lot of money after the price of bitcoin fell 92% on January 16, 2018.

Additionally, prosecutors in the case said BitConnect was a “textbook Ponzi scheme” that paid out early investors with funds invested by new investors.

Authorities say Kumbhani, 35, who has been living in Surat, India, has not been found, while Arcaro, 44, lives in Los Angeles and registered Future Money in Hong Kong. On May 28, the SEC sued five other BitConnect promoters.

According to media reports, the lawsuit has been judged, requiring two of the initiators, Michael Noble and Joshua Jeppesen, and Jeppesen's fiancée to pay $3.5 million and 190 bitcoins.