By Jonathan Stempel
NEW YORK, Sept 1 (Reuters) – The top U.S. securities regulator on Wednesday sued the founder of the now-defunct cryptocurrency exchange platform BitConnect over his alleged role in fraudulently raising about $2 billion from retail investors.
Expanding a civil case announced in May, the U.S. Securities and Exchange Commission charged BitConnect founder Satish Kumbhani, an Indian citizen, with illegally touting BitConnect’s unregistered offering from January 2017 to January 2018.
It also charged the promoter Glenn Arcaro and his firm Future Money Ltd with fraud, saying they received more than $24 million in “referral commissions” and “development funds” while promoting BitConnect from August 2017 to January 2018.
The SEC is seeking fines, the recouping of ill-gotten gains, and other relief in its lawsuit in Manhattan federal court.
Founded in 2016, BitConnect created a digital token called BitConnect Coin that could be exchanged for bitcoin, the popular cryptocurrency.
The SEC said investors in a BitConnect “lending program” were told BitConnect would use a “volatility software trading bot” that could generate returns of 40% per month, and were given fictitious returns showing gains of about 3,700% per year.
In reality, the SEC said BitConnect investors lost much of their money after the price of BitConnect Coin sank 92% on Jan. 16, 2018.
The SEC said Kumbhani, 35, has lived in Surat, India, but his whereabouts are unknown, while the 44-year-old Arcaro lives in Moorpark, California, and incorporated Future Money in Hong Kong.
Efforts to locate Kumbhani were unsuccessful. A lawyer for Arcaro and Future Money did not immediately respond to requests for comment.
The SEC had on May 28 filed a related lawsuit against five other BitConnect promoters.
It has obtained judgments requiring two promoters, Michael Noble and Joshua Jeppesen, and Jeppesen’s fiancee to pay more than $3.5 million and 190 bitcoin.
The other three promoters have not responded to the lawsuit or not been served, court records show. (Reporting by Jonathan Stempel in New York Editing by Matthew Lewis)