On 28 October 2017, at BitConnect's first and only annual conference, in Thailand, investor Carlos Matos went on stage to give an over-exuberant testimonial to the audience.
"Hey hey heeeeeeeeeey... Wasssa wasssa wasssa wasssa wasssa BITCONNEEEEEEEEEEEECT (sic)," he sang to the enthusiastic crowd, with a smile on his face.
It is a well-beloved meme that featured on HBO's Last Week Tonight and still occasionally does rounds on the internet, but few remember the alleged scam behind it that raised $2.4 billion (roughly Rs 18,000 crore) from unsuspecting investors before pulling the rug from under them.
However, the spotlight returned to the case on 25 February, after a United States (US) jury officially charged the founder of BitConnect, India's Satish Kumbhani, with orchestrating a global Ponzi scheme.
Then, in a twist on Monday, the Securities and Exchange Commission told a New York judge that Kumbhani has likely fled India and relocated to an unknown foreign address.
“At present, however, Kumbhani’s location remains unknown, and the Commission remains unable to state when its efforts to locate him will be successful, if at all,” it said, adding that it had been consulting with India’s financial regulatory authorities.
What Was BitConnect?
BitConnect was a site where investors could loan their cryptocurrency to the company in exchange for huge returns, depending on how long the loan was for.
The platform was supposed to generate guaranteed returns for users using a trading bot and “volatility trading software,” which used the volatility of global cryptocurrency exchanges to make substantial profits, prosecutors said.
However, it turned out to be a high-yield investment program (HYIP) which is a type of Ponzi scheme that promises unsustainably high returns but keeps the charade going by paying previous investors with the money invested by new investors.
All BitConnect loans had to be made in BitConnect Coin (BCC). Users would have to exchange Bitcoin for BCC at market rate and invest it. The loan interest and principal was also paid out in BCC after which users could convert it to Bitcoin and dollars if they wished.
This created massive demand for BCC, making it one of the top 20 crypto coins in 2017.
BitConnect also had a multilevel referral feature with thousands of social media users trying to drive sign-ups using their referral code, similar to a pyramid scheme.
In January 2018, after operating for about a year, Kumbhani abruptly shut down the lending programme, after receiving cease and desist letters from Texas State Securities Board and North Carolina Secretary of State Securities Division.
"Kumbhani then directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency (BCC), to create the false appearance of legitimate market demand for BCC."Indictment
He and his co-conspirators allegedly concealed the location of the funds obtained from investors (largely in Bitcoin) by commingling, cycling, and exchanging the funds through a cluster of cryptocurrency wallets and exchanges.
Kumbhani is charged with wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
If convicted of all counts, he faces a maximum total penalty of 70 years in prison. But that is, if he's ever caught.
$56 Million Recovered
In September last year, Glenn Arcaro, BitConnect’s self proclaimed 'top promoter' in North America, pleaded guilty to participating in a massive conspiracy to defraud BitConnect investors in the US and abroad.
Around $56 million were recovered from him in Bitcoin, in what the US Department of Justice called "the largest single recovery of a cryptocurrency fraud by the United States to date."
The US Postal Inspection Service is assisting with the liquidation of the cryptocurrency proceeds into US dollars that the government plans to reimburse victims with.
Divyesh Darji, the India head of BitConnect, was arrested by the Gujarat Crime Investigation Department in August 2018 at the Delhi airport. He is now out on bail and under investigation.
A husband and wife duo was arrested in February this year for allegedly trying to launder roughly $4.5 billion worth of stolen Bitcoins, the US Department of Justice (DOJ) said.
Of the total amount, law enforcement has seized over $3.6 billion in cryptocurrency linked to the 2016 hack of digital currency exchange Bitfinex.
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