The United States Securities and Exchange Commission announced today that it has filed an action against BitConnect, its founder, and its top US promoter. In the official filing, the SEC alleges that they defrauded retail investors out of at least $2 billion by offering fraudulent and unregistered investments.

The lawsuit covers the period between 2017 and 2018 when the defendants launched a BitConnect “lending program” that promised users returns of over 40% per month. According to the filing, the defendants claimed the returns were generated by a “volatility software trading bot” and showed investors fictitious returns with annualized gains of over 3,700%.

A major move against BitConnect

However, instead of using investors’ deposits to trade with the purported trading bots, BitConnect’s founder Satish Kumbhani conspired with Glenn Arcaro, the company’s top US promoter. Kumbhani allegedly siphoned investors’ funds from BitConnect accounts and transferred them to wallets mostly controlled by Arcaro.

The SEC further alleges that the two established a global network of BitConnect promoters, which they rewarded with commissions that haven’t been disclosed to investors.

“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, the associate director of SEC’s New York Regional Office. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”

The lawsuit seeks to impose fines on Kumbhani, Arcaro, and all associated organizations, as well as seek disgorgement with interest. The accused could also face civil penalties.

At the federal level, securities law violations are punishable by up to 20 years in prison and a $5 million fine, with the range of punishment determined based on the amount of money that was manipulated in the alleged scheme. With regulators estimating that Kumbhani and Arcaro defrauded investors out of $2 billion through BitConnect, they could be facing hefty fines.

In a parallel action, the US Department of Justice also announced today that Arcaro had pled guilty in federal court for his participation in the BitConnect scam. Arcaro admitted that he drained $24 million from BitConnect, all of which, according to court documents, he must repay to investors.

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