The U.S. Securities and Exchange Commission said on Wednesday that BitConnect defrauded retail investors out of $2 billion in 2017 and 2018 through a scam involving a crypto trading bot said to offer a guaranteed return on investment.
The SEC alleged that "instead of deploying investor funds for trading with the purported trading bot," BitConnect instead "siphoned investors' funds off for their own benefit by transferring those funds to digital wallet addresses" that were controlled by people and organizations assisting the company with its scheme.
That list of affiliates is said to include BitConnect founder Satish Kumbhani, lead promoter named Glenn Arcaro, and "a network of promoters around the world." Those promoters were allegedly paid commissions, "a substantial portion of which they concealed from investors," for their efforts to help the scam find more victims.
The SEC said it "previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering," and "in a parallel action, the Department of Justice today announced that Arcaro has pleaded guilty to criminal charges." (The Department of Justice announcement can be found here.)
The commission also linked to an investor alert related to digital assets and crypto. In it, the SEC warned that "fraudsters continue to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses," and offered some precautions investors should take before entering these markets.
It's not hard to see why. In addition to this filing against BitConnect, the SEC has recently settled with an unregistered asset exchange that knowingly defied regulations in pursuit of profit and accused a mother-son pair of running a Ponzi scheme that stole $12 million from investors duped by claims of a crypto trading bot.