Late last week, a federal judge in San Diego, Calif. ordered the return of more than $17 million to victims from over 40 different countries whose investments in BitConnect, a massive cryptocurrency fraud scheme, went belly-up when the $2.4 billion pyramid collapsed.
BitConnect and founder Satish Kumbhani as well as lead U.S.-based promoter Glenn Arcaro have been under scrutiny by not only criminal prosecutors but also the Securities and Exchange Commission over what the Department of Justice labeled a “textbook Ponzi scheme,” through which earlier BitConnect investors were paid with money from later investors.
The authorities allege that the Kumbhani, Arcaro, and other co-conspirators obtained the billions from domestic and foreign investors between January 2017 to January 2018.
They enticed investors with the promise that BitConnect’s so-called “Lending Program” would yield lucrative returns. Under the program, the defendants touted BitConnect’s purported proprietary technology, its “BitConnect Trading Bot” and “Volatility Software,” as being capable of generating substantial profits and guaranteeing returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
Yet, investor funds were not used by the Trading Bot, and were instead siphoned off for the defendants’ own benefit, including up to 15% of the money invested that went directly into a “slush fund.”
In September 2021, Arcaro pleaded guilty to conspiracy to commit wire fraud and received 38 months of prison time.
In last week’s order, Judge Todd W. Robinson noted that as part of his plea, Arcaro consented to the forfeiture of all property seized in connection with the case, including more than $24 million. A further $14 million was received from a sale of Arcaro’s other crypto assets, bringing the total to over $38 million.
The court granted the DOJ’s request that $17.6 million of the total forfeiture amount be returned to victims. Judge Robinson also permitted the law enforcer to email 5,000 potential victims directly about their claims as part of the forfeiture proceedings. Arcaro is represented by Andrues/Podberesky.
In February 2022, Kumbhani was indicted for his central role in the multibillion-dollar fraud. His criminal case is also proceeding before Judge Robinson in San Diego.