U.S. selling seized cryptocurrency in BitConnect fraud case

Signs at the US Department of Justice headquarters in Washington, DC, August 29, 2020.

Andrew Kelly | Reuters

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

The Justice Department said the cryptocurrency liquidation follows the “largest single cryptocurrency redemption by the United States to date.”

Proceeds will be used to compensate victims of BitConnect fraud.

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

This scam allegedly tricked thousands of people in the US and abroad out of more than $2 billion worth of bitcoin from January 2017 to January 2018 by offering investors returns of up to 40% per month, which is supposed to be generated by BitConnect’s software trading bot alleged volatility.

“These allegations were fictitious,” said the Securities and Exchange Commission in a lawsuit in September against BitConnect, founder Satish Company and Glenn Arcaro, a Los Angeles man who was BitConnect’s main promoter in the United States.

“As the defendants knew or recklessly ignored, BitConnect did not release investor funds for trading using the alleged trading bot,” the SEC said in the lawsuit.

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

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

The cryptocurrency being sold has been seized from 20 digital wallets controlled by Arcaro, who pleaded guilty on September 1 to conspiracy and wire fraud related to a fraudulent marketing scheme to offer BitConnect coins and crypto exchanges.

Arcaro, 44, has earned at least $24 million in commissions and other payments

Arcaro admitted that he and others misled investors about the alleged BitConnect technology, dubbed the “BitConnect Trading Bot” and “Volatility Software,” claiming that it would generate significant investment profits by trading on the volatility of the cryptocurrency exchange markets.

“In fact, BitConnect operated the textbook Ponzi scheme by paying early BitConnect investors with money from subsequent investors,” the Department of Justice said in September.

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

Last Friday, a federal judge allowed the Department of Justice and the US Attorney’s Office for the Southern District of California to liquidate the cryptocurrency seized from Arcaro, who approved the seizure.

The Securities and Exchange Commission said in its lawsuit that BitConnect was an unincorporated organization that registered four companies in the UK, all of which are now either canceled or dissolved.

The Securities and Exchange Commission said the whereabouts of Kompany, a 35-year-old Indian national, was unknown.

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