By Michael Scott
The Department of Justice (DOJ) directed the distribution of $17 million to the 800 victims of the multi-billion crypto fraud dubbed the textbook Ponzi scheme. The order echoes a ruling delivered by the Southern District of California Court on January 12.
The scheme arose from the crypto lending platform featuring Bitconnect Trading Bot alongside Volatility Software that would yield guaranteed returns to investors. To the contrary, the DOJ discovered that Bitconnet operated a textbook Ponzi scheme that utilized collections deposited from later investors to pay off earlier investors.
BitConnect Promoter Imprisoned
The court handed a 38-month sentence to Glenn Arcaro after the BitConnect promoter in the US pleaded guilty. He admitted his input in September 2021 to orchestrate wire fraud. The DOJ had earlier indicated plans to sell off cryptos seized from Arcaro, estimated at $56 million. The DOJ revealed in November advanced plans to utilize the proceeds in compensating the victims.
The DOJ announced an indictment targeting Bitconnect’s founder Satish Kumbhani. The fugitive is accused of earning $2.4 billion in the Ponzi scheme. The DOJ added Kumbhani is charged with conspiracy to perpetrate wire fraud, commodity price manipulation, and running unlicensed money-transmitting operations. Additional charges related to Khumbhani’s involvement in international money laundering.
Old School Multi-tier Pyramid Explained
Bitconnect started in February 2016 as a multi-tier pyramid that rewarded investors relative to the affiliates one brought to the program. By October 2017, BitConnect toke (BCC) ranked eighth valuable crypto with a market capitalization of $2.6 billion. The project portrayed an ambitious yield where $1000 would earn $36,000 in 12 months.
The project design attracted criticism from prominent figures in the crypto industry led by Litecoin’s Charlie Lee and Digital Galaxy founder Mike Novogratz. Novogratz argued that BitConnect was a scam that replicated the old school ponzi started by a bad actor with desire to leverage the crypto community.
In addition, Ethereum developer Vitalik Buterin warned of the vulnerability of the multi-tier payment structure that mirrored old school Ponzi.
BitConnect would implode in 2018 when regulators ordered its closure. While investors received their BCC tokens, the coin price declined from $500 to exchange hands below $1. The US SEC would later initiate a lawsuit in September 2021.
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