U.S. selling seized cryptocurrency in BitConnect fraud case

Signage is seen at the United States Department of Justice headquarters in Washington, D.C., August 29, 2020.

Andrew Kelly | Reuters

The U.S. Justice Department will sell off $56 million worth of cryptocurrency it seized as part of a massive Ponzi scheme case against a man who promoted the offshore crypto lending program BitConnect, authorities said Tuesday.

The Justice Department said the liquidation of the cryptocurrency follows “the largest single recovery of a cryptocurrency fraud by the United States to date.”

Proceeds will be used to reimburse victims of the BitConnect fraud.

The Justice Department encouraged victims of that fraud to visit a website, https://www.justice.gov/usao-sdca/us-v-glenn-arcaro-21cr02542-twr, to submit claims for reimbursement from the sale.

That scam is alleged to have swindled thousands of people in the U.S. and abroad out of more than $2 billion worth of bitcoin from January 2017 to January 2018 by offering investors returns of as high as 40% per month, which supposedly would be generated by BitConnect’s purported volatility software trading bot.

“These claims were a sham,” the Securities and Exchange Commission said in a lawsuit in September against BitConnect, its founder Satish Kumbhani and Glenn Arcaro, a Los Angeles man who was the lead promoter of BitConnect in the United States.

“As Defendants knew or recklessly disregarded, BitConnect did not deploy investor funds for trading with its purported Trading Bot,” the SEC said in the suit.

Instead, “BitConnect and Kumbhani siphoned investors’ funds off for their own benefit, and their associates’ benefit, by transferring those funds to digital wallet addresses controlled by Kumbhani, Arcaro, other promoters, including the Arcaro Promoters, and other unknown individuals.”

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Authorities said the scheme is believed to be the largest cryptocurrency fraud ever prosecuted.

The cryptocurrency being sold was seized from 20 digital wallets controlled by Arcaro, who pleaded guilty Sept. 1 to conspiracy and wire fraud related to the scheme to fraudulently market BitConnect’s coin offering and digital currency exchange.

Arcaro, 44, earned no less than $24 million from commissions and other payments

Arcaro admitted that he and others misled investors about BitConnect’s purported proprietary technology, dubbed “BitConnect Trading Bot” and “Volatility Software,” claiming they would generate large investment profits by trading on volatility in cryptocurrency exchange markets.

“In truth, BitConnect operated a textbook Ponzi scheme by paying earlier BitConnect investors with money from later investors,” the Justice Department said in September.

Arcaro faces a maximum possible sentence of 20 years in prison. He is due to be sentenced on Jan. 7.

A federal judge last Friday authorized the Justice Department and the U.S. Attorney’s Office for the Southern District of California to liquidate the cryptocurrency seized from Arcaro, who consented to the seizure.

The SEC in its lawsuit said that BitConnect was an unincorporated organization that registered four companies in the United Kingdom, all of which are now either defunct or dissolved.

The whereabouts of Kumbhani, a 35-year-old citizen of India, are unknown, the SEC said.

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