Key Insights:

• BitConnect founder Satish Kumbhani indicted for Ponzi Scheme

• In 2021, BitConnect and Kumbhani were sued by the SEC.

• Penalties for illegal activity are hefty, with some jurisdictions calling for life sentences.

BitConnect was a proof-of-stake (PoS) platform allowing users to buy Bitconnect Coin (BCC) to earn interest. Users could sell Bitcoin (BTC) for BCC and then lock in the BCC price and earn daily interest over defined lock-in periods.

In September 2021, the SEC filed an action against BitConnect, founder Kumbhani, its top promoter, and his affiliated company. The action alleged that they defrauded retail investors out of $2bn through the fraudulent and unregistered offering of investments.

From early January 2017 through January 2018, the SEC claimed that the defendants siphoned money by transferring funds to digital wallet addresses. The wallets were in the control of Bitconnect, its founder, and top U.S promoter, Glenn Arcaro among others.

Grand Jury Indicts BitConnect Founder

On Friday, the United States Justice Department (DoJ) announced the indictment of BitConnect founder Satish Kumbhani. A federal grand jury indicted Kumbhani with “orchestrating a global Ponzi scheme.”

As per the press release, Kumbhani “misled investors about BitConnect’s Lending Program.” The press release goes on to say: “BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators obtained approximately $2.4bn from investors.”

The SEC charges the defendants with violating the antifraud and registration provisions of the federal securities laws.

U.S promotor Arcaro had pleaded guilty to the criminal charges back in September of last year.

Hefty Fines and Lengthy Jail Terms Are on Offer for Crypto Lawbreakers

The SEC and the DoJ have been particularly active in the crypto space.

Earlier this week, BitMEX co-founders Delo and Hayes pleaded guilty to violating the U.S Bank Secrecy Act. Under the terms of their plea agreements, “Hayes and Delo each agreed to pay a $10 million criminal fine representing pecuniary gain derived from the offense.”

In 2021, BitMEX paid a $100m penalty for violating the Commodity Exchange Act (CEA) by offering the trading or processing swaps without approval as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).

BlockFi also paid a $100m penalty in an SEC settlement this month.

While the sums are sizeable, regulators in South Korea have taken a sterner approach against fraudsters and scammers. In January, news hit the wires of South Korean prosecutors wanting to put crypto criminals away for life. Executives of crypto platform V Global reportedly received hefty jail terms for a $1.7bn fraud. The CEO received a 22-year jail term.