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US regulator sues Indian citizen for $2 billion cryptocurrency fraud

US regulator sues Indian citizen for $2 billion cryptocurrency fraud (Pic. Courtesy moneycontrol.com)

The U.S. securities regulator on Wednesday filed a lawsuit against the founder of the fake cryptocurrency exchange platform BitConnect over his alleged role in fraudulently raising about $2 billion by duping thousands of retail investors worldwide.

After three years of investigations, the U.S. Securities and Exchange Commission charged BitConnect founder Satish Kumbhani, an Indian citizen, with lying about BitConnect's ability to generate profits, and violating registration laws meant to protect investors. This is one of the biggest cryptocurrency scams ever.

The fake platform was a multi-level Ponzi scheme that promised too good to be true returns quickly.

Kumbhani, 35, has lived in Surat, India but his whereabouts are unknown. The SEC has also sued five other BitConnect promoters.

Founded in 2016, BitConnect created a digital token called BitConnect Coin that could be exchanged for bitcoin, the popular cryptocurrency.

The promoter created fake testimonials on YouTube to advertise a "lending program" that investors would invest in.

The SEC said investors in a BitConnect "lending program" were told BitConnect used a "volatility software trading bot" that could generate returns of 40% per month, and were given fictitious returns showing 3,700% annualized gains, according to a Reuters report.

Prosecutors said BitConnect ran a Ponzi scheme by paying earlier investors with new investor money.

But the regulator said investors lost much of their money after the price of BitConnect Coin sank 92% on Jan. 16, 2018.

An American promoter for the scheme, Glenn Arcaro, pleaded guilty in federal criminal court over his role in fleecing U.S. investors. Arcaro, 44, lives in Los Angeles and incorporated Future Money in Hong Kong, authorities said.

The SEC lawsuit seeks to impose fines and recover the money that has been siphoned out.

Also read: India makes it mandatory for companies to declare cryptocurrency deals